Should we be tariffied? (Part 1)

This is the first of a two-part post. Part 1 discusses the current situation with the Trump Administration’s tariffs and provides an overview of the impact tariffs can have on economies. Part 2 will outline basic steps you can take to prepare for rough economic waters—whether tariff related or not.

By Nick Hengl, CFP®, EA

The first two months of the Trump Presidency are in the books and, thus far, it's been uneventful.

...is what I wish I could say, but, alas, the world's largest economy has spent 2025 being poked, prodded, and used as a battering ram--and the world watches with bated breath.  So, what's going to happen? And how will it impact our financial lives?  

For this first substantive blog post, I’m deep diving into the sticky world of tariffs.  We are officially on day two of 25% tariffs against Canada and Mexico, as well as a 10% bump in the existing tariffs on China.  And considering both countries have responded—including a 25% tariff from the Canadians—let’s call it what it is: a trade war.

What are tariffs and why are they used?

Tariffs are taxes levied (usually) by one country against the goods of another.  In our current situation, the United States has placed tariffs on goods being imported from Canada, Mexico, and China—with potentially more to come.  The reasons for doing this range from protecting a nation’s critical industries against foreign competition, to fixing trade imbalances, to exerting geopolitical pressure on bad actors. 

Let’s use Canadian maple syrup as an example. This hypothetical, by the way, is not real…it’s just silly. Hypothetical: The United States’ beloved syrup brand, Log Cabin, has long clamored that Canadian maple syrup companies are engaging in unfair marketing practices, propagandizing the US public to believe maple syrup is superior to the delectable treat that is flavored corn syrup. As a threat to the Nation’s “table syrup” suppliers and a symbolic afront to the famed home construction of our 16th president, the US implements a 25% tariff on Canadian maple syrup. This—in theory—will punish those maple-loving propogandists while generating more revenue for the US; it will redirect demand for pancake syrups to US-based companies; Log Cabin will have new capacity to grow and create jobs; and we will all chant “USA! USA!” as we slather our breakfast plates with corn syrup.

This example—delicious though it may be—doesn’t capture the breadth of the current tariffs but should illustrate the theory behind them.

So, do tariffs work?

Well…it depends on the goals of the tariffing country.  I am comfortable saying this: by and large, tariffs have a clear net negative impact on economies.  I’m not just talking about the target country either.  An analysis conducted by the IMF looking at 151 countries between 1963 and 2014, showed adverse impacts on output, productivity, and unemployment in the five years following implementation, and the impact on trade imbalances was minimal.  Furthermore, a 2018 analysis by the Tax Foundation points out the common misperception that a trade deficit–as measured by the flow of goods between countries–is not necessarily a correlate of financial health, and that “A current account (trade) deficit is simply another way of stating that we have a capital account surplus”.  Essentially, It’s two sides of an accounting identity coin.

The Trump Administration’s first round(s) of tariffs in 2018 didn’t demonstrate any exception to this research.  As the authors of a 2019 analysis in the Journal of Economic Perspectives concludes, “The deleterious impacts of the tariffs imposed by the Trump administration in 2018 have been largely in line with what one might have predicted on the basis of a simple supply and demand framework”. 

For some this will be evident, for others this may come as a surprise: we the people--the American consumers--ended up footing the bill in 2018.  And it will almost certainly happen again.  We'll first see this in imported fresh produce like avocados, strawberries, and raspberries.  Those of us who might enjoy a cold Mexican lager during the summer will be paying 25% more for the pleasure.  About 85% of our frozen Freedom fries--formerly French fries--comes from Canada. And, of course, our pancakes might start tasting a little more corn syrupy than usual.  Of greater consequence, lumber and natural gas prices will likely increase--as, respectively, about 50% and 99% of our supply comes from Canada.  And let's not forget our friends in China who will be receiving a 10% bump to their tariffs.  Must I go through the list of affected imports from China?

How will all of this impact the stock market?

It's hard to say how our investment portfolios might be hit by tariffs long term.  The stock market seemed relatively unfazed until today (March 4, 2025), and although you’ll hear words like “plumet” or “plunge” from news sources, the S&P 500 is still only ~6% off its all-time high.  My impression: the market views Trump's tariffs as a short-term game of chicken; a bargaining chip to elicit some nebulous feat of economic/societal victory over our neighbors.  I say "nebulous" because it still isn't entirely clear that there's a definitive purpose to the tariffs.  According to the official statement on whitehouse.gov, these tariffs are meant to stop the import of fentanyl—but as Canadian Prime Minster Justin Trudeau pointed out, less than 1% of the fentanyl seized by border authorities came from Canada. So…what are we doing?

In absence of a clear objective or viable path forward, I believe the duration of the tariffs is what really matters.  The longer the trade war continues, the more market participants will be disillusioned and rattled. Tariffs take their toll quickly, and increased prices accompanied by decreasing consumer optimism will take hold. Whether I'm right or wrong, there are things that can be done in all of our personal financial lives to prepare for and buffer against the potential worst case scenarios…Part 2 coming soon.

Resources and Citations

Overview of tariffs in recent US history: "Why Economists Hate Trump's Tariff Plan"

Discussion of Current Tariffs: "How New Tariffs on Mexico, Canada and China Are Hitting U.S. Consumers"

2018 Article from National Bureau of Economic Research: “Macroeconomic Consequences of Tariffs”

2018 Article from Tax Foundation: “The Impact of Trade and Tariffs on the United States”

2019 Article from Journal of Economic Perspectives: “The Impact of the 2018 Tariffs on Prices and Welfare”

Important Disclaimer: The information provided in this blog post is for informational and educational purposes only and should not be considered financial, investment, or legal advice. Every individual's financial situation is unique, and you should consult with a qualified financial professional before making any financial decisions. The opinions expressed are those of the author and do not necessarily reflect the views of any affiliated organizations. Investments involve risk, and past performance is not indicative of future results.