US tariffs on imports might make things as clear as mud, but a diversified portfolio is like having a backup plan for your backup plan!

Key Takeaways

• The United States is casting a wider net of tariffs on imported goodies, like a fisherman trying to catch every fish in the sea!

• Governments around the world are playing the tariff game, slapping fees on foreign stuff trying to sneak into their countries like a bouncer at an exclusive club.

• Tariffs are like the Swiss Army knife of politics; they can nudge other nations' policies, shield local businesses, promote fair play, and even keep the homeland safe from the big bad wolf.

• But beware! Tariffs might also pull a sneaky one, hiking up prices and putting jobs on a diet.

The United States has decided to play the tariff game, slapping new ones on imported steel and aluminum. They're also considering a tit-for-tat approach, where if you tax their goods, they'll tax yours right back! Chinese products are already feeling the pinch, and Mexico and Canada might be next in line for this tariff tango.

It's anyone's guess how long this tariff party will last, whether some imports will get a "get out of tariff free" card, or how the rollercoaster of currency exchange rates might soften the blow on the prices of imported goodies in the U.S.

With all this uncertainty, the stock market might be in for a bit of a wild ride. But let's not forget, U.S. economic growth and corporate profits have been the real stars of the financial show, way more than any short-lived government policy shenanigans.

According to Stock Market Charlie, the big cheese at Black Investors Coalition, the best way to handle market ups and downs is to keep your portfolio as colorful as a bag of jelly beans—diversified with global stocks and bonds from all over the world. That way, you're ready for whatever market madness comes your way, no matter what's causing the ruckus.

What are tariffs? Let's dive into the exciting world of tariffs!

Tariffs are like those sneaky little fees you get charged for bringing in goodies from abroad. Historically, governments have used these taxes for all sorts of reasons: to give local businesses a leg up, to wag a finger at other countries for bad behavior, and to keep an eye on national security.

After World War II, the big players on the world stage decided to play nice and signed the General Agreement on Tariffs and Trade (GATT). This was basically a group hug for reducing tariffs and boosting international trade in goods and services.

But in the last decade, governments around the world have had a change of heart about free trade. They've started to think, "Hey, maybe we should give our own industries a fighting chance!" So, they've been ramping up the costs of those pesky imported products. According to the International Monetary Fund, the number of new tariffs globally skyrocketed from a record low of 239 in 2012 to a whopping 2,845 in 2023. That's a lot of tariff love!

Discover How Tariffs Work!

Picture this: tariffs are like giving your local industries a superhero cape! They swoop in to save the day by jacking up the prices of goods and services from foreign competitors. The result? Suddenly, those homegrown products start looking like the prom king or queen to consumers.

Now, enter the countervailing or anti-dumping tariff, the trusty sidekick in the world of global trade. Unlike its cousin who’s all about giving domestic producers a leg up, this tariff is on a mission to keep the playground fair. Imagine a scenario where a foreign country tries to sneakily flood the market with super cheap, subsidized goods, hoping to trip up the local heroes. Bam! The anti-dumping tariff steps in, adjusts those sneaky prices, and makes sure everyone’s playing nice and fair in the sandbox of international trade.

How Does the US Play the Tariff Game?

The US government has been playing the tariff game like a pro for ages to give a boost to its homegrown industries. Picture this: back in 1789, they slapped a tariff on foreign sugar, and then went on a tariff spree with a shopping list of foreign goodies. Fast forward to 2018, and the US decided to throw a $360 billion tariff party on imports from China. Why? Because China was acting like the schoolyard bully, pressuring US companies to hand over their intellectual property secrets just to hang out in their sandbox. Most of these tariffs are still partying hard, and last year, the US added even more to the guest list—some as high as 100%! Now, $18 billion worth of Chinese products, from steel and aluminum to semiconductors and electric vehicles, are feeling the tariff love.

Who Foots the Bill for Tariffs?

When companies ship stuff into countries that slap on tariffs, they have to pay the government's tax collectors like they're tipping a doorman. But don't worry, these importers aren't taking the hit alone—they pass the cost right onto us, the consumers, by hiking up the prices. So, next time you see a price tag that makes you gasp, just remember you're doing your part to keep those tax folks happy!

Exciting Benefits of Tariffs

Tariff cheerleaders claim they're like superhero capes for companies, swooping in to save the day for businesses and the towns that rely on them for jobs and cash flow. Take the U.S., for example, which slapped a 25% tariff on imported light trucks back in 1964. This move was like a grumpy uncle's revenge on European governments, whom the U.S. accused of letting their chicken farmers cluck their way into flooding the American market with dirt-cheap chicken. Fast forward, and this "chicken tax" has been the secret sauce keeping U.S. truck makers at the top of the pickup truck pecking order, even as their car market share skidded from a whopping 90% to a mere 40%.

Tariffs also play the role of babysitters for what Alexander Hamilton dubbed "infant industries," giving them a chance to grow up before facing the big, bad world of foreign competition. This is the strategy behind the latest tariffs, which aim to boost the homegrown production of medical supplies and semiconductors, rather than leaving the U.S. at the mercy of international suppliers for these must-have items.

Drawbacks of Tariffs

Critics say tariffs are about as welcome as a skunk at a garden party because they make prices shoot up like a rocket. But guess what? The U.S. tariffs slapped on over the last decade haven’t caused inflation to go on a wild bender. When the U.S. started its tariff tango with China in January 2018, the Consumer Price Index (CPI) was chilling at 2.1%. By mid-year, inflation had a little too much fun and went up to 2.9%, but then it sobered up to 1.9% by December, ending the year with a mellow 2.4%. The next year, despite the U.S. and China having a trade spat that could rival a soap opera, U.S. inflation stayed under 2.5% until COVID came in and changed the script in 2021.

As for the possibility of more tariffs crashing the party, Black Investors Coalition Research Team predicts inflation will keep a "flattish trend," which is basically economist-speak for "not much happening." However, they admit that getting back to the chill, low inflation vibes of the past 20 years is going to be as easy as teaching a cat to fetch.

Tariffs often get a bad rap for being like a boomerang that hits the workers they're supposed to help. The theory goes that as tariffs jack up the prices of imported goods, local producers might decide to join the price-hike party for raw materials. This puts manufacturers of finished goods in a pickle, forcing them to cut jobs to keep their heads above water.

On top of that, some folks argue that tariffs are like putting the economy on a diet—of the crash variety. The Tax Foundation, which looks at tariffs the way a cat looks at a bath, forecasts that the tariffs the U.S. has been dishing out since 2018 will trim the GDP by 0.2%. And if new tariffs join the fray, we might see another 0.8% shaved off the GDP. Yikes!

Wacky World of New Tariffs

Stock Market Charlie is like a financial detective, digging through history's dusty files to predict the future. He notes that when the U.S. first slapped tariffs on Chinese imports, it was like trying to inflate a balloon with a pinhole—didn't really pump up inflation. But the S&P 500 did take a nosedive of about 15% in 2018. Back then, unlike now, the Federal Reserve was playing hard to get with interest rates, real rates were sky-high, and valuation spreads were tighter than a pair of skinny jeans. Now, those spreads are as wide as the Grand Canyon, signaling market jitters. But hey, the more jittery the market, the more likely it is to shake off the nerves like a dog after a bath.

For investors, uncertainty is like that annoying relative who never leaves—always there. That's why it's crucial to keep your eyes on the prize and regularly check your investments to make sure they still fit your timeline, risk appetite, and financial situation like a glove. Your investment portfolio should be your financial fortress, designed to meet your goals while keeping you calm, even when political storms are brewing outside.

We suggest you—either on your own or with your financial sidekick—get crystal clear on your goals and investment timeline, assess your risk tolerance like you're choosing a bungee jumping cord, and pick a mix of stocks, bonds, and short-term investments that match your investment dreams.