Tariff Update

As you’ve likely heard, the Trump Administration announced early Monday that it reached an agreement with China where both sides would decrease tariffs on each other during a 90-day pause while trade negotiations continued. Markets around the world cheered this announcement and major indexes here at home opened yesterday up around 3+% and held that through the close. The NASDAQ rose over 4%.

Here are some of the tariff details as reported yesterday by the Wall Street Journal:

• We’re lowering our “reciprocal” tariff on Chinese goods to 10% from 125%.
• We’re still planning to tack on an additional 20% fentanyl-related tariff on Chinese goods.
• China is reducing it’s retaliatory tariff on our goods to 10% from 125%.
• These tariff reductions are supposed to last for 90 days while talks continue.
• Combined, it’s reported that our average tariff on Chinese imports would be nearly 40% (existing and new tariffs) if all this actually sticks.

Going into the weekend markets anticipated a tariff reduction to maybe 50% or 80% from 145%, so the outcome of the Trump Administration’s talks with the Chinese delegation in Geneva over the weekend was better than expected. However, these new tariffs will still have a meaningful impact on pricing and profitability for a wide variety of imports and the businesses and consumers who rely on them (so pretty much everybody).

Who knows what ultimately comes of this agreement over the next 90 days. Investors may be assuming that cooler heads are prevailing and the ultimate tariff amounts might be substantially less than 30%. Whatever the final number, the surge of uncertainty in recent weeks is reverberating through the economy. Numerous anecdotes tell of business plans interrupted, paused and cancelled orders, and so forth, even business closures. The busy Port of Los Angeles expects a 25% reduction in imports during May following reductions in April. This is expected to create shortages for certain goods this summer, but how this plays out across the country and in macroeconomic numbers is anyone’s guess.

Along these lines, the CEO of Flexport, a logistics management company, has an interesting perspective on these supply chain issues and has been making the media rounds talking about the real-world impact on importers. Here's a link to the company’s X (Twitter) feed where you can watch some of the CEO’s interviews on CNBC, the PBS Newshour, etc.

https://x.com/flexport/status/1920883274206826847

One of many takeaways for individual investors from this turn of events is the importance of staying the course amid uncertainty and fear. We’ve now had yet another reminder of how quickly markets can fall before climbing rapidly and in surprising fashion. We’ll likely see more volatility in the near-term, but it’s a cost all long-term investors must bear. It’s unpleasant but I think it’s worth it over the long run.

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