We could write a lot about tariffs and the fact that the Trump administration (and his adviser Peter Navarro) have a different understanding about the impact of tariffs than pretty much all other economists and people who deal with these kinds of things. But that would be boring, as you will have heard a lot of those discussions already. To understand how Peter Navarro sees things, check out this podcast by the New York Times Daily - https://www.nytimes.com/2025/02/18/podcasts/the-daily/trumps-tariff-peter-navarro.html
As you know the tariffs (and their on again off again status), have caused a bit of a stir in financial markets, leaving investors wondering about the potential knock-on effects on the global economy.
We have summarised a recent paper and presentation from one of your fund managers, Capital Group, a global investment management firm.
The Capital New Perspectives Fund invests in multi-national corporations - the really big companies, so they need to follow and understand the impact of the tariffs on trade flows and the companies that they invest in.
Two Capital economists, Jared Franz and Tryggvi Gudmundsson, have offered some valuable insights into the motivations behind these tariffs and what they might mean for the future. The full paper can be downloaded from the link below this blog post.
1 .Why the Sudden Focus on Tariffs?
According to Capital Group, there are several key reasons why we're seeing this renewed emphasis on tariffs
Decoupling | One aim is to reduce reliance on single-source supply chains, particularly those in countries like China. The idea is to encourage manufacturing to return to the United States | |
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Rebalancing | These tariffs are also intended to restore balance with trading partners such as Europe, Japan, Mexico, and Canada. The goal here is to lower the US trade deficit and push these countries towards more balanced trade | |
Negotiating | The current US administration has made it clear that tariffs are being used as a tool to pressure other countries to cooperate on various policy objectives, such as immigration and drug trafficking | |
Funding | Finally, tariffs are seen as a way to generate revenue for the US government, which could potentially offset the costs of other policies like tax cuts |
It is important to note that the intended purpose of a tariff can significantly influence its longevity.
For instance, tariffs used for negotiation are less likely to stick around long-term compared to those that are part of a broader strategy of decoupling
Navigating the Uncertainty: What's the Economic Impact?
Trying to figure out the exact economic fallout from these tariffs is proving to be a tricky business given the speed at which things are changing.
We are seeing tariffs being announced, then paused, then potentially reinstated, creating a lot of uncertainty.
Capital Group highlights that standard economic models, which are based on decades of increasing global integration, might not be entirely reliable in this new environment. As one of their colleagues noted, sometimes you have to “turn off the models” and assess the situation as it unfolds.
They are using a "four-box framework" and extensive scenario planning to consider different potential outcomes for the economy, markets, and companies.
Their team believes we could be at the beginning of a new structural shift in the global geopolitical order, while also seeing a continuation of trends that have been brewing for years.
The forceful delivery of this message is a key reason for the market volatility we've observed recently.
Capital Group's current outlook is for continued healthy US economic growth in 2025, driven by strong consumer spending and business investment.
However, they acknowledge that the sheer scale and number of recent policy moves could complicate this forecast.
While they typically focus on fundamental economic drivers like income and profits, the current level of geopolitical uncertainty might cause economic activity to deviate in unprecedented ways .
This is why they suggest a cautious approach, observing the real-world impact of these events as they happen.
What Does This Mean for Your Investments?
The evolving tariff situation underscores the importance of diversification and a long-term perspective in your investment strategy. The uncertainty highlighted by Capital Group reinforces the need to stay informed but also to avoid making rash decisions based on short-term market fluctuations.
At Moneyworks, we are keeping a close eye on these global developments and their potential impact on your portfolio. If you have any concerns or would like to discuss how these changes might affect your financial plan, please don't hesitate to get in touch with your adviser.
