There’s a never-ending stream of political news these days, but the stock market has remained relatively resilient. The market successfully weathered potential distractions that may have been detrimental in previous years, but that calm may end as as there have been ongoing discussions about tariffs with global trade partners.1
In the past, the presidential power to deploy sanctions without congressional approval has been kept in check by the provision that sanctions may only be enacted in the interest of our nation’s security, as authorized by the Trade Expansion Act of 1962.2
President George W. Bush challenged that premise in 2002 when he increased tariffs on select steel products. The impact was short but impacted about 200,000 jobs in U.S. manufacturing. Moreover, the World Trade Organization ruled the tariffs illegal, stating they violated U.S. trade agreements. President Bush withdrew the tariff policy less than two years later.3
As financial advisors, we generally caution against making changes to an investment portfolio based on political actions. We encourage clients to focus instead on their personal financial objectives and construct a portfolio designed to meet specific goals. However, keeping this general tenet in mind, if you are in or approaching retirement there are several reasons you may consider adding a guaranteed income component to your portfolio, including: 4
- Transition higher-risk assets to a lower-risk position.
- Position your portfolio to deliver long-term reliable income.
- Prepare for potentially reduced Social Security benefits in the future.
- Reposition assets to mitigate potential declines triggered by global tariffs.
If you’re interested in considering reliable income positions for your portfolio, please give us a call. Meanwhile, we’ll have to wait and see if and when America’s tariffs and retaliatory measures impact the financial markets. Historical precedents indicate that the stock market does see some effect related to tariffs .5
Some economists worry that a trade war could possibly undermine the burgeoning U.S. economy and offest many potential benefits of the new tax legislation. Stock market analysts point to potential weak performances by the Dow and S&P 500 in the weeks leading up to the first tariffs that took effect on July 6.6
The following industries are expected to be the hardest hit: 7
- Energy: Many oil pipelines are made of specialty steels not currently produced in the U.S. Paying those tariffs or replacing foreign sources with domestic may possibly raise prices.
- Auto manufacturers: European car manufacturers in the U.S. export 60 percent of their cars and employ 120,000 American workers in U.S. manufacturing plants; auto tariffs could impact $300 billion in U.S. exports.8
- Farmers: With no forthcoming trade agreements, China has already imposed retaliatory tariffs on U.S. agricultural exports such as soybeans, fruit and pork.9
A global trade war could further affect a wide range of industries by disrupting global supply chains in sectors that rely on outsourced components. While some officials argue that other countries have more to lose in a trade war against the U.S., there is still a lot of information to consider for companies, employees and investors who may be impacted in the interim. 10
1 Tiana Lowe. National Review. May 15, 2018. “Trump’s Tariffs.” https://www.nationalreview.com/2018/05/donald-trump-tariffs-d HYPERLINK “https://www.nationalreview.com/2018/05/donald-trump-tariffs-debate-national-security-economics/”e HYPERLINK “https://www.nationalreview.com/2018/05/donald-trump-tariffs-debate-national-security-economics/”bate-national-security-economics/. Accessed July 6, 2018.
3 William Hauk. Marketwatch.com. April 4, 2018. “Opinion: Here’s what happened to jobs the last time the U.S. imposed tariffs on steel.” https://www.m HYPERLINK “https://www.marketwatch.com/story/heres-what-happened-the-last-time-the-us-imposed-tariffs-on-steel-2018-03-08″a HYPERLINK “https://www.marketwatch.com/story/heres-what-happened-the-last-time-the-us-imposed-tariffs-on-steel-2018-03-08″rketwatch.com/story/heres-what-happened-the-last-time-the-us-imposed-tariffs-on-steel-2018-03-08. Accessed July 6, 2018.
4 Alessandra Malito. Marketwatch.com. July 7, 2018. “This is why you shouldn’t count on Social Security.” https://www.marketwatch.com/story/this-is-why-you-s HYPERLINK “https://www.marketwatch.com/story/this-is-why-you-shouldnt-count-on-social-security-2017-10-27″h HYPERLINK “https://www.marketwatch.com/story/this-is-why-you-shouldnt-count-on-social-security-2017-10-27″ouldnt-count-on-social-security-2017-10-27. Accessed July 8, 2018.
5 Paul Whitfield. Investor’s Business Daily. June 27, 2018. “How Trump Could Sink The Stock Market.” https://www.investors.com/how-to-invest/inves HYPERLINK “https://www.investors.com/how-to-invest/investors-corner/trump-trade-tariffs-history-dow-jones-industrials/”t HYPERLINK “https://www.investors.com/how-to-invest/investors-corner/trump-trade-tariffs-history-dow-jones-industrials/”ors-corner/trump-trade-tariffs-history-dow-jones-industrials/. Accessed July 6, 2018.
6 Tom Aspray. Forbes. June 24, 2018. “The Week Ahead: Three Warning Signs Of A Bear Market.” https://www.forbes.com/sites/tomaspray/2018/06/24/the-week-ah HYPERLINK “https://www.forbes.com/sites/tomaspray/2018/06/24/the-week-ahead-three-warning-signs-of-a-trump-bear-market/#77dfdc6961de”e HYPERLINK “https://www.forbes.com/sites/tomaspray/2018/06/24/the-week-ahead-three-warning-signs-of-a-trump-bear-market/#77dfdc6961de”ad-three-warning-signs-of-a-trump-bear-market/#77dfdc6961de. Accessed July 6, 2018.
7 Benjamin Zycher. National Review. May 30, 2018. “How Trump’s Steel Tariffs Could Harm National Security.” https://www.nationalreview.com/2018/05/trump-steel-tari HYPERLINK “https://www.nationalreview.com/2018/05/trump-steel-tariffs-undermine-national-security/”f HYPERLINK “https://www.nationalreview.com/2018/05/trump-steel-tariffs-undermine-national-security/”fs-undermine-national-security/. Accessed July 6, 2018.
8 Ivana Kottasová. CNN. July 2, 2018. “EU warns Trump’s car tariffs threaten $300 billion of US exports.” http://money.cnn.com/2018/07/02/news/economy/car-t HYPERLINK “http://money.cnn.com/2018/07/02/news/economy/car-tariffs-europe-warning/index.html”a HYPERLINK “http://money.cnn.com/2018/07/02/news/economy/car-tariffs-europe-warning/index.html”riffs-europe-warning/index.html. Accessed July 6, 2018. [
9 Investopedia. June 20, 2018. “China Warns Washington’s Trade Actions Will Hurt U.S. Workers, Farmers.” https://www.investopedia.com/partner/reuters/china-warns-was HYPERLINK “https://www.investopedia.com/partner/reuters/china-warns-washingtons-trade-actions-will-hurt-us-workers-farmers/”h HYPERLINK “https://www.investopedia.com/partner/reuters/china-warns-washingtons-trade-actions-will-hurt-us-workers-farmers/”ingtons-trade-actions-will-hurt-us-workers-farmers/. Accessed July 6, 2018.