Yesterday, President Donald Trump unveiled his comprehensive set of “reciprocal tariffs” aimed at addressing what he and his administration describe as decades of unfair practices favouring its trading partners.
The tariffs, framed as a “Declaration of Economic Independence” are to revitalize American industries, reduce trade deficits, and correct what the administration views as longstanding imbalances in international trade. The revenues being generated from the tariffs are expected to contribute toward reducing debt and pay down national debt.
While these are the official justifications for the tariffs, it’s also likely that Trump is engaging in a high stakes strategy based on the principle of reciprocity. By imposing significant tariffs on imports, he aims to pressure other countries to eliminate or reduce their own tariffs on American goods. The endgame of this would be to encourage trading partners to negotiate trade deals that are more “balanced”, where tariffs on both sides are eliminated or equalized.
This approach carries significant risks and potential rewards. It could either bolster the U.S. economy by securing more favorable trade terms or trigger retaliatory tariffs, increased costs for American consumers, and disruptions to global supply chains. The markets are still reacting to the news, with volatility increasing in afterhours trading last night and into this morning. Uncertainty is likely to persist as the situation continues to develop over the coming months.
Summary of the Tariffs and Current Trade Landscape
- Baseline tariff of 10%: A universal tariff on all imports into the U.S., effective immediately.
- Country specific tariffs: Some nations will face higher tariffs under what the administration calls the "U.S.A. Discounted Reciprocal Tariff", calculated as half the rate those countries impose on U.S. exports. A detailed table outlining these tariffs, along with trade balances of various countries as of 2024, is found below later in the report.
- Tariffs on automakers: Additional tariffs of 25% will be charged to all foreign-made automobiles, effective April 9, 2025.
- Canada and Mexico are exempt for now: Both countries remain exempt from the new tariffs under the United States-Mexico-Canada Agreement (USMCA). Though tariffs will however apply to the non-U.S. portions of Canadian made automobiles.
Following President Trump's recent announcement of sweeping reciprocal tariffs, J.P. Morgan now estimates the effective U.S. tariff rate to increase to 23%, up from 10% prior to the announcement. The U.S. bank projects these new tariffs could generate approximately $400 billion in revenue on a static basis.
However, the broader economic implications may be significant. J.P. Morgan warns that the tariffs are expected to boost core PCE inflation by 1–1.5%, primarily in the second and third quarters of 2025.
This inflationary pressure, combined with tightening financial conditions and elevated volatility, could push the U.S. economy perilously close to recession territory.
These developments underscore the importance of monitoring consumer spending trends and business sentiment as the tariff effects ripple through the broader economy in the months ahead. While markets have reacted in a knee-jerk manner, it’s important to note that volatility and market repricing is a part of investing. We encourage investors to take a long-term approach to investing.
Summary of the Tariffs and Current Trade Landscape
Summary of New Tariffs and Trade Surplus/Deficit with the U.S.
Market Impact at the Open…
U.S. Breakeven Rates Surge Anticipating Higher Inflation
S&P 500
Opened Lower
Canadian Dollar Gaining Given its Tariff Exempt for Now
U.S. 10-Year Yields Drop on Risk Aversion
Portfolio Perspective...Take a Long-Term Approach
As the saying goes, “Keep Calm and Carry On.” While the charts above may appear alarming, it’s important to remember that markets are often driven by short-term behavior. Historically, data shows that staying invested over the long term is one of the most effective strategies for building wealth. Market corrections and speedbumps are a natural part of investing, but the probability of achieving positive returns increases significantly with longer holding periods—as illustrated in the chart below from our colleagues at Exhibit A.
Short-term volatility can feel unsettling, but in the grand scheme, it is often just noise. A well-diversified portfolio, thoughtfully constructed with a long-term outlook, can help smooth out volatility and keep investors aligned with their financial goals. While the current tariff situation may bring short-term uncertainty, potential resolutions or relief rallies are possible.
Rather than reacting impulsively to market headlines, we encourage investors to stay focused and disciplined. Consult your Q Wealth Portfolio Manager to review and refine your strategy. Also, keep an eye out for our upcoming iQ Playbook Q2 2025, set for release in the coming days, where we’ll share deeper insights and actionable ideas to help navigate this evolving market environment.
To Put Things into Perspective, here are Some Charts from Our Friends at Exhibit A
Disclaimer
Quintessence Wealth, a registered Portfolio Manager in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan, an Investment Fund Manager in Newfoundland and Labrador, Ontario, and Quebec, and an Exempt Market Dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Saskatchewan. The Ontario Securities Commission (OSC) is the principal regulator for Quintessence Wealth.
The information contained in this document comes from sources we believe to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. The information contained herein may not apply to all types of investors. The opinions in this market outlook were prepared by Alfred Lee as of the date of this report and are subject to change without notice. It is based on various sources, believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are that of the author and do not necessarily reflect the opinion of Q Wealth as a firm. This report is not to be construed as an offer or solicitation to recommend Q Wealth products to clients.
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