We previously covered tariff policy in our RSWA Blog article Tariffs – Are There Pros and Cons? and are revisiting the topic due to its impact on the economy and investment markets. For an introduction to tariffs, refer to our earlier article—this newsletter will focus on new details and recent developments.
Recent Tariff Announcements: Last week, President Trump announced tariffs of 25% on imports from Mexico and Canada and 10% on China but quickly reversed them after significant market and political backlash. The news caused volatility in stock and bond markets, as many believed the tariffs were a negotiating tactic rather than a policy shift. The Dumbest Trade War in History - WSJ
What are Tariff Rates Around the Globe? Clients have asked if other countries impose high tariffs on the U.S. and if the U.S. needs to raise tariffs to level the playing field. Also, how good or bad are tariffs economically? Most countries apply tariffs in the low single digits. Until recently, the U.S. maintained an average tariff rate of 1.5% on imported goods. Here are the tariff rates other countries/regions charge on imported goods for key U.S. trade partners (2022):
- European Union countries - 1.33%
- Canada – 1.37%
- Mexico – 4.75%
- China – 3.1%
- Japan – 1.60%
- Australia – 1.0%
Other countries impose higher tariffs on imports, such as India (11.5%), South Korea (8.6%), and Saudi Arabia (5.4%), but most remain in the low-to-mid single digits. Worldbank
Economic Impact of Tariffs: The prevailing view among economists is that higher tariffs can increase consumer prices, disrupt trade, and create market instability. Here is how they predict tariffs economic effect:
- Economic Growth: A March 2018 survey by Reuters found that nearly 80% of 60 economists believed that tariffs on steel and aluminum imports would be detrimental to the U.S. economy, with the remainder anticipating little to no effect; none expected a positive outcome. Wikipedia
- Inflation: Economists widely agree that tariffs lead to higher prices for both imported and domestically produced goods. In a survey using a hypothetical 20% tariff by the University of Chicago's Booth School of Business, economists indicated they would expect a 10% increase in prices for imported products and a 14% rise for domestic goods within a year following tariff implementations. University of Chicago
- Stock and Bond Markets Volatility: While specific survey data on stock and bond market impacts is limited, increased tariffs are generally associated with heightened market volatility. Investors often react negatively to potential profit margin compressions and supply chain disruptions resulting from higher tariffs. The volatility and declines reflect investor concerns over potential impacts on corporate earnings and economic growth. AP News
Tariff increases, especially at rates of 10% or 25%, risk disrupting international trade and economic stability. The long-term impact will depend on policy decisions and global responses. We will continue to monitor developments in trade policy and their effects on markets, but we hope that higher tariffs are more of a negotiating tool than new policy.
Company Q4 Earnings: About a third of companies have reported fourth-quarter earnings. So far, 77% have reported earnings above estimates (not unusual, the 10-year average is 75%). One characteristic of this earnings season is that winners have been rewarded more than usual and companies that miss have been punished slightly less than in previous quarters. This is probably due to positive earnings guidance given during company calls. Earnings are incredibly important, as over the long term, stocks follow earnings, so a solid earnings season is good for stocks. FactSet Insight
2024 Tax Forms: Not all Schwab tax forms for 2024 are available yet but should be within the next couple of weeks. This is a public service announcement - be kind to your accountants and be sure to forward them ASAP to make their lives easier! Help them, help you! 😊
Financial Planning/Investment Strategy Corner:
Kakeibo is the Japanese Art of Saving Money: Kakeibo (pronounced kah-keh-bo) is a Japanese budgeting method that promotes mindful spending and intentional saving. Developed in 1904 by Hani Motoko, Japan’s first female journalist, Kakeibo is a simple yet effective way to track expenses and achieve financial goals.
Unlike modern budgeting apps, Kakeibo relies on pen and paper, encouraging users to engage deeply with their finances. At the start of each month, individuals set a savings goal and categorize expenses into four groups: Needs (essentials like rent and food), Wants (non-essentials like dining out), Culture (books, music, education), and Unexpected Expenses (medical bills, repairs).
Throughout the month, expenses are recorded manually, fostering awareness of spending habits. At the end of the month, users review their spending, reflect on areas for improvement, and adjust their habits accordingly. This mindful approach helps people become more intentional with their money, leading to better financial discipline and savings.
Kakeibo is not about restriction but about mindful choices. By understanding where money goes and making small adjustments, individuals can build long-term financial stability while still enjoying life. This simple yet powerful method has gained global popularity as a tool for financial wellness. BBC Video
Quick Hits:
- Some common injuries can be avoided with some simple exercises for the neck, shoulders, glutes, and grip: The Guardian
- How much vitamin D do you really need? How to best get it: BBC Science
- What are the most and least federally dependent states? WalletHub
- Learn why Dubai chocolate is the hot new thing (Valentine's gift idea?)! LuLu Recipes
- Here are recipe ideas for the Super Bowl – mini Philly Cheesesteaks anyone? Allrecipes
- And to get you in the mood for the game, here are some all-time great SB ads: EW
Seasonal Affective Disorder (SAD): It’s that time of year again. SAD is a type of depression that typically occurs during the fall and winter months when daylight is limited. It is particularly tough on those of us in northern New England. Symptoms include fatigue, irritability, changes in appetite, and sleep disturbances. Probably everyone gets affected a little bit and there are things you can do to help yourself.
Effective treatments for SAD include:
- Light Therapy: Exposure to a light box emitting bright light for about 30 minutes each morning (or even periodically) can help regulate circadian rhythms and improve mood.
- Exercise: Engaging in regular physical activity, especially outdoors, can boost mood by releasing endorphins and providing natural light exposure.
- Diet: Maintaining a balanced diet rich in omega-3 fatty acids, vitamins, and minerals supports overall brain health.
- Therapy and Medication: If it’s serious, please seek professional help and see your doctor who may be able to provide medication.
Implementing these strategies can help manage and alleviate the symptoms of SAD. And keep in mind that spring is around the corner and Daylight Savings Time is less than five weeks away! Mayo Clinic Chicago Behavioral Hospital VeryWellHealth
Quote: “Talent sets the floor; CHARACTER sets the ceiling.” Bill Belichick, New England Patriots
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
