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We will attempt to share some apolitical observations about what’s going on, with a little insight into why.  None of what follows is meant as a political statement.  Our role isn’t to take sides—it’s to interpret what’s happening and keep you informed.

Tariffs, Turbulence and the Bigger Picture

We acknowledge that what’s going on now feels a little different.  It was easier to explain the Tech Bubble and the Global Financial Crisis.  We could point to systemic issues that contributed to both of those outcomes, whereas this one is, to some degree, self-induced; but there’s a reason for it.

On April 2^nd, the Trump Administration implemented sweeping new tariffs, most notably a 10% baseline tariff on all imports, with substantially higher rates on some Chinese goods.  The move has been met with skepticism by many investors, economists, and foreign leaders, and there’s no question that the short-term consequences have been disruptive.

These tariffs may well represent a case of self-induced economic pain.  But it’s also true that our current economic path as a country is unsustainable and has been for quite some time.  For the last 50+ years, it’s grown worse with every president, Republican or Democrat.  And it’s reached a point that it cannot be resolved without some degree of economic pain.  We all feel empathy when people experience financial strain, which is precisely why every U.S. President, and every Congress, has continued to kick the can down the road.

The United States is now $37 trillion in debt, and that does not include the unfunded obligations of Medicare, Medicaid, Social Security, and other safety nets.  Those obligations add another $100 trillion to the total debt picture.  Have you ever thought about how much a trillion is?  This analogy drives it home – one million seconds ago was about 12 days.  One billion seconds ago, it was 1993.  One trillion seconds ago, it was 29,665 years before Christ!  And yes, please feel free to fact-check it!

To put this in perspective, let’s take this equation down to a middle-class household earning $100,000 a year.  If that family had the same balance sheet as the U.S. Government, they’d be carrying around $1.3 million in total debt.  And each year, their current spending would exceed their annual income by $30,000.  It’s equivalent to having two maxed out credit cards while using a third card to make the minimum payments on the first two.  The problem is that the government doesn’t max out its credit card, it just keeps printing money!  Do you see an easy way out for this family?  We don’t!

The tariffs may or may not help restore fiscal credibility to the United States.  Reasonable people can disagree with the strategy.  What’s crystal clear is that something has to change, and it’ll probably take radical change.  Whether through spending cuts, tax increases, inflation, or tariffs, or some combination; very difficult choices lie ahead.  Kicking the can merely increases the future pain.

The press seems certain that tariffs will be inflationary; is that true?  We believe tariffs may lead to higher prices in the short-term, but there are important countermeasures that can dampen or even offset inflationary pressure over longer periods.  History shows that while tariffs can cause price disruptions initially, markets often adjust in ways that restore equilibrium.

Energy is a key driver of inflation across the entire economy, from transportation and logistics to food production.  Oil has dropped from $78 to $60 a barrel over the last three months.  So, while tariffs can push prices up in certain sectors—like electronics, appliances, or imported vehicles—it’s not a universal rule.  The broader inflation picture depends on many moving parts, including energy prices, consumer demand, supply chains, and monetary policy.

To be clear, we agree there’s major debate on how this is being handled and how it’s being implemented.  We don’t know if this is the right tactic or the right method, nor does anyone else.  What we do know is this, something has to change!

What Does This Mean to the Long-Term Investor?

Few people remember that in 2018, Donald Trump became the first U.S. President to impose broad and sweeping tariffs on China, a move that had been endorsed in prior years by both Nancy Pelosi and Chuck Schumer.  This contributed to a very difficult year in the markets. The S&P 500 dropped by more than 9% during December of 2018, making it the worst December since 1931, and the biggest monthly loss since February of 2009.

Despite these initial fears, the anticipated prolonged inflationary impact did not materialize as expected.  In fact, inflation in 2019 was approximately 1.8%, down from 2.4% the year before.  By the end of 2019, markets had rebounded with the S&P 500 reaching a new record high.

This suggests that while tariffs introduced short-term volatility, they did not derail the broader economic trajectory.  Markets have the capacity to recover as business and policy uncertainties begin to resolve.  It serves as a reminder that economic resilience often prevails, even amidst significant policy shifts.

Having said that, while the tariffs imposed in 2018 offer a useful parallel, they’re not a roadmap of the future.  What we’re facing now is much more expansive.  The current round of tariffs is much broader in scope and scale, and the global backdrop is more fragile, shaped by higher interest rates, geopolitical tension, and slower global growth.

We expect more market volatility in the near term, as investors digest these policies and what they mean for global growth and corporate profit margins.  Recent market movements illustrate the futility of trying to time this!  In early April, we saw major declines following tariff announcements.  This was followed by the announcement of a 90-day pause, which led to a single-day increase of 9.5% in the S&P 500.

We have no idea what’s going to happen in the short term.  However, we believe the long-term investor who remains diversified, disciplined, and focused, and who keeps the faith in our great country and the global economy, will weather this storm and benefit from what lies ahead.

Conclusion

While the current economic landscape presents significant challenges, including substantial national debt and the implementation of extensive tariffs, it’s important to recognize that periods of uncertainty have always been followed by resilience and recovery.  The solutions here are likely to be painful, and whatever they are, all of us are likely to feel it.  When I think about the future, and about my grandsons, I’m willing to endure some economic pain to get us back on track.

Our goal is to remain neutral, realistic, and focused on long-term stewardship.   We don’t pretend to know how this plays out.  But we do know that long-term investing requires perspective, discipline, and a sober understanding of where we are and where we’re headed.

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If you have questions about your portfolio or would like to discuss how current events may impact your long-term plan, we encourage you to reach out to your Beaird Harris advisor directly.

Not currently working with us but looking for a second opinion or simply a sounding board? Let’s talk!  Schedule a complimentary introductory meeting—we’d be glad to connect.