Tariffs, Tensions, & Turmoil

I realize that talking about the economic impact of the latest political shifts can be taken differently depending on who I’m talking to. I work with clients across the political spectrum—some liberal, some conservative, and many in between. While I do have my own personal views, I understand these are just that: my views. My responsibility here is to maintain objectivity, assess the potential risks and opportunities, and manage investments accordingly.

We’re in a rapidly changing environment, and policies like tariffs, tax adjustments, and new trade dynamics can have far-reaching effects on global markets. It’s my job to break down these shifts and guide my clients in a way that aligns with their financial goals. So, while I generally steer clear of diving into politics, I feel it’s important this time to offer my perspective on how unfolding events might influence the markets—recognizing, of course, that everyone won’t see things the same way.

—Ryan

It’s never too early for a good conversation starter—there’s already a T-shirt proclaiming, “I survived the 2025 Global Trade War,” even though we’re still basically in the early innings.

For those not keeping score, it’s been a tense few days. Over the weekend, President Trump stayed true to his campaign promises by announcing a 10% tariff on Chinese imports and a 25% tariff on Canadian and Mexican imports.

• Feb 1: The U.S. imposed a 10% tariff on Chinese imports, citing efforts to curb fentanyl trafficking and address economic imbalances.

• Feb 2: China retaliated with a 15% tariff on U.S. coal and natural gas and a 10% tariff on U.S. oil and cars. Additionally, China announced an antitrust investigation into Google.

• Feb 3: The U.S. escalated by imposing a 25% tariff on all imports from Canada and Mexico, except Canadian energy, which faces a 10% tariff. The stock market dropped in response.

• Feb 4: The U.S. suspended the Canadian and Mexican tariffs for 30 days. In response, Canada appointed a “Fentanyl Czar” to enhance border security, and Mexico committed to deploying 10,000 troops to the U.S. border to curb immigration and drug trafficking. The stock market rallied.

I can’t claim to know exactly how Trump thinks, but one thing is clear—he consistently takes an assertive stance and loves to use tariffs to achieve his objectives. And I don’t think we’re done.

It’s important to note that Trump has been talking about tariffs since the 1980s. This isn’t a newly discovered tool of his.

Trump likes to create high-stakes scenarios to force concessions, and that’s exactly what’s happening right now. He knows the U.S. is in a position of economic strength.

• Mexico: Exports to the U.S. account for 35% of its GDP. However, exports to Mexico make up only about 1.2% of U.S. GDP.
• Canada: Exports to the U.S. account for 22% of its GDP. However, exports to Canada make up only about 1.3% of U.S. GDP.
• China: Here, the imbalance isn’t as clear-cut. Exports to the U.S. account for 2.9% of China’s GDP, while exports to China account for about 3.5% of U.S. GDP. Although both sides are significant trading partners, China is much less reliant on the U.S. than Canada or Mexico.

Trump knows that these countries rely on the U.S. for their economic security, so, he loves to begin his negotiation strategy by anchoring high. And by negotiation strategy, I mean implementing tariffs unannounced on a weekend.

Political Posturing

When a country is on the receiving end of a tariff, you might assume its natural response would be to impose its own tariff. In reality, this doesn’t do much to counteract the original move. Aside from political posturing, it usually makes the situation worse.

Here’s why:

When a country announces a new, wide-ranging tariff, the counterparty’s currency often depreciates, helping offset the tariff’s impact. That’s exactly what we saw over the past few days.

In the chart above, you see the Mexican peso whipsawing on news of the 25% tariff, then recovering once the moratorium was announced. Focusing on the initial drop: Let’s say a product costs $100 USD before the tariff. A 25% tariff would raise it to $125 USD. But if the peso weakens by 4% (which happened over the weekend), the effectively lower peso price reduces that cost to around $120 USD, blunting the tariff’s impact.

If Mexico were to retaliate with its own tariff in hopes of “offsetting” this, its currency would likely appreciate again, negating the benefit of depreciation it had already gained.

This is why retaliatory tariffs are more about optics than economics—markets adjust quickly, and currency fluctuations can neutralize a big chunk of the damage.

We’re Not Done

Of course, there is reason to be concerned. In my view, the biggest economic question is how inflationary these tariffs might be. Nobody knows for certain because several factors are at play. How quickly will increased prices pass through? How elastic is the demand and supply for these goods? How much of the inflation triggered by COVID-era money printing is already reflected in the current economy, and how much is still to come? And, of course, what will our political leaders on all sides do next?

Given the relative strength of the U.S. and the relative weakness of much of the rest of the world, I expect the U.S. market and economy to perform relatively well in the short term. We are, after all, the biggest economy in the world and in a position of strength.

However, if these tariffs persist over the long haul, the U.S. would lose. Other countries would eventually decouple by seeking different trading partners, resulting in a more fragmented global economy—a system that has largely benefited the U.S. for decades.

One fact remains: the U.S. is still the global leader in both innovation and trade. Buying into the hype and panicking is not a wise choice. Stay neutral, and don’t lose sight of the U.S.’s capacity to adapt. History shows that our economy is extremely resilient. We can withstand—and even thrive through—change. That is the beauty of our democracy. Avoid the hype, filter out the noise, and remember that the market is quite resilient.

Ryan A. Hughes

Ryan is the founder of Bull Oak, a financial advisor in San Diego. He’s been listed in InvestmentNews 40Under40 and his firm has been named one of the fastest-growing by Wealth Management Magazine.