Tariffs are nothing new, but President Trump’s recent announcements are certainly feeding current market volatility. Tariffs are taxes imposed on imported goods and services and, prior to the federal income tax being implemented in 1913, nearly all of the Federal Government’s revenue was from tariffs. These were slowly replaced by higher income tax rates as targeted tariffs were used primarily to protect certain industries. Today, tariffs are typically used to protect domestic industries from foreign competition, generate revenue for the government and sometimes as a tool for political leverage in trade negotiations. During the 2024 fiscal year, less than 2% of revenue collected by the U.S. government was from tariffs.
It’s important to recognize that, while tariffs can have short-term protective benefits for certain industries, they can also lead to higher costs for consumers and businesses that rely on imported goods. For example, a company that imports products affected by tariffs has to pay those tariffs. It is up to that company to determine if they take the hit to their margins, pass along the tax to the consumer, or perhaps they can negotiate a lower price from the foreign seller to help offset the impact (or more likely some combination of the three). Conversely, this may give a purely domestic competitor the opportunity to actually raise prices and improve their margins or take market share.
Market Uncertainty and Normalization
We know that financial markets thrive on stability and predictability and that current tariff policy introduces a level of uncertainty that can lead to increased volatility. However, it is important to remember that markets have a remarkable ability to adapt and normalize over time. Historical data shows that, despite periods of uncertainty, markets tend to recover and continue their upward trajectory.
Looking back to the second year of President Trump’s first term, the market experienced a 4% decline, largely due to tariff-related concerns. Despite this, the remaining years of his term saw solid positive returns, demonstrating the resilience of the financial markets even amidst uncertainty.
Rest assured that Ancora’s investment professionals are always monitoring the economic landscape and meeting regularly to discuss current events and their potential impacts on our clients and their portfolios. We remain focused on long-term goals and are dedicated to navigating through short-term market fluctuations. We understand that headlines like these can be concerning, but it is important to stay focused on the bigger picture. A disciplined approach helps investors to not get sidetracked by temporary market disruptions.
We remain steadfast in our commitment to your financial objectives. Should you have any questions or concerns, please do not hesitate to reach out to us.