Tariffs on the Rise: Implications for Your Portfolio
President Donald Trump (who was sworn in today) has proposed increasing tariffs, potentially imposing a 10% tax on all U.S. imports. This would add to the tariffs implemented during Trump’s first term and the Biden presidency, potentially raising U.S. tariffs to levels not seen in decades.
Tariffs were originally introduced in the United States in 1798 to raise federal revenue and enhance domestic competitiveness. Between 1798 and 1913, tariffs accounted for 50% to 90% of U.S. federal income. Today, that figure is only 2%.
For revenue, income taxes are now preferred to tariffs because they are progressive rather than regressive. Additionally, competitiveness, trade rerouting, floating exchange rates and retaliation generally limit the domestic benefits of modern-day tariffs.
Why the resurgence?
Our base case is that new U.S. tariffs are on the way as part of an effort to enhance supply chain security.
Overall, we expect the United States to increase tariff rates on imports from China significantly, from 20% to 50%. While we do not believe blanket duties on all imports are likely, tariffs on specific goods or trading partners are. Trade partners would likely retaliate with tariffs of their own, exacerbating the negative shock to global trade.
This makes tariff policy perhaps the biggest risk to global growth today. Still, it should be noted that individual importers often receive exceptions to tariffs, which can soften their economic impact. Importantly, we remain positive on U.S. assets, with some sectors and asset classes standing to benefit from tariffs.
Investment implications
Tariffs may contribute to higher inflation without corresponding economic growth. Because of this higher inflation, we think the Federal Reserve will leave interest rates higher than it otherwise would have. We see the Fed cutting its benchmark rate to 3.5%–3.75% by the end of 2025, with risks skewed to the upside, and we expect the 10-year U.S. Treasury rate to reach 4.45% by year-end.
We expect U.S. equities to continue to outperform the rest of the world in 2025. The net impact of the tariffs and the implications of the administration’s policy goals are likely to benefit the industrial sector as well as the utility sector, where infrastructure buildout will be required.
Source: “Tariffs on the Rise: Implications for Your Portfolio” by Thomas Kennedy, Chief Investment Strategist, Alex Wolf, Head of Asia Investment Strategy, Harry Downie, Global Investment Strategist, January 14, 2025.
