One of my favorite memories is of our high school senior play, The Music Man (photographed here in 1975) which was an adaptation of the original 1957 Broadway musical written by the brilliant Meredith Wilson, who also wrote the music, lyrics, and the book on which it was based. Anyone who has seen the films or Broadway productions may recall the popular song “Ya Got Trouble”.  The conniving salesman, Harold Hill sang about trouble in River City, “Trouble with a capital T and that rhymes with P and that stands for pool!” (as in pool hall) something the good folks in River City, Iowa certainly did not welcome. Well, we may have trouble with a capital T again, but now it’s in DC, it is not fictional, does not rhyme with P and stands for tariffs.

President Trump is rapidly making good on his campaign promise to increase or levy new tariffs on products coming into the United States from our trading partners. On February 1, he levied 25% tariffs on all imports into the U.S. from Mexico and Canada (excluding energy resources from Canada, which are already subject to 10% tariffs) and he increased tariffs on China by 10%. His stated goal was to reduce security risks from the influx of illegal aliens and illicit opioids as the basis for his actions. All three countries immediately threatened counter-tariffs, and the next day Trump announced that the tariffs on Mexico and Canada would be delayed by one month to see if they live up to their commitments, but tariffs on China would remain in place. 

Then in mid-February, President Trump announced plans to seek reciprocal tariffs and trading relations between the U.S. and all our trading partners. He announced 25% tariffs on all imported steel and aluminum beginning March 12, with no country or product exceptions. The U.S. imports 25% of its steel and 50% of its aluminum used in production. The impact of tariffs on inflation, the economy, and markets is yet to be known, but many believe tariffs will raise prices because most companies will need to pass those higher costs onto their customers. If that happens, will the Federal Reserve pause its credit-easing policy? Will consumers pull back on spending resulting in a slowdown in our previously robust economy? Will equities, which are already trading at above-average valuations, experience a sell-off?

There is always a chance that some tariffs may be avoided as the threat alone can have the desired effect that President Trump is seeking. That may be the case with Mexico and Canada, both of which immediately promised to take action on illegal immigration and opioids. We may see trouble with a capital T, but investors possessing intelligent, goals-based financial plans know that while T may rhyme with P, in this case P stands for peace. These investors possess an emotional peace that comes from knowing the future cannot be predicted, but their plans have already modeled the various economic and market scenarios discussed above, allowing them to get on with the business of life.