By Joe Halwax, CAIA, CIMA
   Senior Managing Director, Institutional Investment Services
 
   

 

As tariffs descended on key U.S. trade partners China, Canada and Mexico—and then were paused on Canada and Mexico—last week, investors were confronted with a fundamental question: Will President Donald Trump’s trade strategy be primarily opportunistic and short-term, or deeply structural and transformative?

Tactical tariffs represent a negotiation tool, designed to extract concessions from foreign governments through economic pressure. One example might involve leveraging tariff threats against Mexico to secure more robust border security commitments.

Structural tariffs embody a more comprehensive economic philosophy. They aim to fundamentally reshape import dynamics, such as addressing the trade imbalances. This approach suggests tariffs are not merely a transactional mechanism, but an instrument for broader economic and geopolitical recalibration.

The Trump administration’s tariffs are just one of many topics investors will have to monitor over the coming weeks and months. Investors will also have to navigate sweeping changes in immigration policy, budgetary frameworks, regulatory environments and geopolitical relationships. To prevent this blog from becoming unwieldy, we will keep the focus on the potential impacts the tariff could have on investors. Here are five things to monitor:

5 Potential Impacts on Markets and Investors

1. Political and Cultural Tensions

• The tariffs risk creating significant political backlash and straining international relationships.
• Trump originally campaigned on lowering costs for Americans, riding a wave of voter anger over inflation. These tariffs appear to directly contradict his campaign promise, potentially increasing consumer costs and undermining economic appeal.
• Public sentiment about the U.S. is shifting, with 50% of Canadians now viewing the U.S. as "unfriendly" or an "enemy."
• There is the potential for long-term damage to Trump's economic credibility, which is key to his brand and central to his campaign platform.

2. Market Volatility

• Immediate stock market reactions to the tariffs enforced on goods imported from Canada and Mexico include:
  • The S&P 500 dropped 1.7% on March 3—its biggest daily dip of 2025—on the eve of the new tariffs taking effect. The index fell another 1.2% the following day, reaching its lowest level in four months.
  • The Dow Jones Industrial Average tumbled 1.5% on both March 3 and March 4.
• Goldman Sachs estimated back in early February—when the tariffs against Canada, Mexico and China were first scheduled to be implemented—a 2-3% reduction in S&P earnings per share because of the tariffs, Reuters reported.
• Investors should prepare for potential market instability in the coming months from the tariff talks, and the weaker U.S. economic data in February.
• The U.S. markets are already fragile with high concentration in large cap technology and high valuations, as evidenced by the sharp drawdowns from the August yen carry trade blowup and DeepSeek-induced volatility in late January.

3. Consumer Price Increases

• There’s the potential for significant price hikes across various sectors. In particular, consumers in the market for a new car could feel sticker shock. On March 5, the automotive industry received a month-long reprieve from the tariffs on goods imported from Mexico and Canada, but if the tariffs are eventually imposed, a Michigan-based economic consultancy expects the cost of a pickup truck assembled in North America to jump $8,000.
• Supply chain disruptions could lead to broader inflationary pressures.
• The National Association of Wholesale Distributors issued a statement about how prolonged tariffs “could create significant cash flow challenges and supply chain disruptions for distributors.” The trade association added that tariffs “divert valuable capital away from critical investments in hiring, wages, training, and expansion.”

4. Drag on Economic Growth

• The Atlanta Fed's GDP estimate for Q1 2025 has fallen precipitously to -2.8% as of March 3. The estimate was +3.0% just one month earlier. The latest estimate is the biggest projected contraction since the start of the pandemic.
• The tariffs will disproportionately impact lower-income households, according to an analysis released by the Yale University Budget Lab on March 3.
• Potential economic contraction is being predicted across multiple economic indicators. The drag on GDP and the increased inflation potential heightens the risk of stagflation.

5. Uncertain Duration and Negotiation Dynamics

• Tariff implementation has been—and may continue to be—fluid and subject to rapid changes.
• It seems there is always the potential for negotiation and policy modifications or reversals.
• China, Canada and Mexico have responded, or plan to respond, with retaliatory measures, which could reduce U.S. exports to those countries.
• Business groups are urging reconsideration of the current approach. Will we see further policy changes to include weakening the U.S. dollar?

Navigating a Complex Global Economic Landscape

The current global economic order is experiencing fundamental recalibration. Traditional assumptions about international commerce, supply chains, diplomatic relations, and economic interdependence are being systematically challenged and reconstructed. This dynamic environment demands a sophisticated, nuanced approach to investment strategy.

At Wespath, we understand that the transformative shifts in trade policy highlight the critical importance of portfolio diversification. The evolving global landscape—with its dynamic trade relations and rapidly changing policy environments—strengthens our commitment to constructing diversified investment portfolios that can endure various scenarios.

Our client portfolios are meticulously designed to align with each client's specific objectives and mission. We create custom, multi-asset portfolios that are built to perform across diverse economic conditions, incorporating a balanced mix of assets, including bonds, stocks, domestic and international markets, and emerging market sectors. We collaborate closely with investment committees to ensure optimal portfolio construction.

During periods of market volatility, investors often feel pressure to react hastily. However, in light of the Trump administration's rapid and numerous policy changes, we focus on identifying long-term secular trends and filtering out short-term noise. By maintaining this diversified and disciplined approach, we aim to provide our clients with resilient and robust investment solutions.