Good afternoon –

With the news of tariffs hitting the headlines over the weekend we wanted to share our quick thoughts on how this relates to your financial plan and what we are seeing. Although we think there is a lot of uncertainty around the ultimate impacts to this, it warrants a watchful eye.

President Trump has issued an executive order imposing a 25% tariff on imports from Canada and Mexico and a 10% tariff on all Chinese goods, effective February 4. The de minimis exemption has been revoked, broadening the impact, particularly on supply chains and e-commerce. These tariffs, issued under emergency economic powers, are tied to immigration and fentanyl concerns.

Key Takeaways:

1. Scope & Scale: The tariffs affect over 40% of U.S. trade and could escalate based on negotiations or retaliatory actions.
2. Global Response: Canada and Mexico have announced countermeasures, with Canada imposing 25% tariffs on select U.S. goods and Mexico preparing its own response. China is pursuing legal action via the World Trade Organization.
3. Market Implications: Uncertainty remains regarding the duration and potential escalation of these tariffs. While short-term resolutions are possible, legal challenges and geopolitical tensions add complexity.
4. Potential Expansion: Europe may be the next target, with possible tariffs aimed at repealing digital service taxes. Industries such as semiconductors, pharmaceuticals, and metals are at heightened risk.
5. How long will they last? Our base case remains that a deal can be struck to avoid long-term 25% tariffs, but that is far from a given. Using International Emergency Economic Powers is a relatively untested legal strategy, the Executive Order could be halted by a federal court. The speed and scope of implementation is greater than expected, adding to the potential that these tariffs remain in place longer than expected. The multiple additional rounds and scope of tariffs (using various authorities) make the tariff threat a lasting issue for 2025.

We will be keeping a close eye on key developments and will continue to update you and keep you aware of the latest developments as necessary. However, we anticipate that negotiations may lead to a resolution as you already saw on Monday morning with the tariffs on Mexico being suspended for a month, the legal and geopolitical complexities make this a key risk to monitor.