Well, Liberation Day is finally upon us.
This new round of US tariffs is like magically getting gum (inflation) out of your hair without needing a haircut (recession, joblessness), then celebrating by repeatedly punching yourself in the face and giving yourself a buzz cut with gardening shears anyway.
These “reciprocal tariffs” are significantly worse than even the gloomiest strategists’ worst-case scenarii. Markets are understandably scrambling, trying to piece together how exactly economies, industries, and companies will be affected. But let’s be crystal clear: this sharply raises the odds of recession—not just in the US but globally.
Despite their catchy branding, these tariffs have nothing to do with genuine reciprocity. They’re based on a bafflingly simplistic formula (trade deficit divided by exports), utterly devoid of economic logic and with zero internal consistency. It’s enough to make you sigh deeply, roll your eyes, and scratch your head (or, in my case, shout futilely at the television). In practice, this means there’s literally no way to “fix” this scenario unless the entire planet decides to rebuild global trade overnight. And even then, everyone is stuck with a minimum 10% tariff rate—the highest trade-weighted tariff on the globe by a country mile.
And remember, this rosy scenario assumes absolutely no retaliation. Yet, ironically, Scott Bessant has warned other nations against any “rash” reactions—despite the US throwing the first punch. The US calculation conveniently ignores services, an area where the US is a huge net exporter, making these service exports prime targets for retaliation. The real goal seems closer to what Donald Trump Jr. hinted at on Twitter: creating panic among other countries, hoping they’ll desperately rush to secure deals with the Negotiator-in-Chief while “deals” are still on the table. This diplomacy-by-patronage is precisely one of the major risks I’ve recently highlighted in client discussions.
Interestingly, these tariffs fit awkwardly into the tangled web of interests at the highest level of the administration: the “Mar-a-Lago Accord” coalition, economic feudalists, mercantilists, kleptocrats, and AGI-is-coming crowd. Some will see this as economic nationalism winning the day; others will worry that the US is squandering their position as a global trading powerhouse. Likewise, factions like “trade equalizers” need the US dollar to drop in value to make US goods more attractive for export. Conversely, the “tariffs replace income taxes” faction requires a strong US dollar to ease the pain of increased import costs from tariffs. Unlike Schrödinger’s cat, the US dollar can’t be simultaneously higher and lower.
Canada and Mexico may have been [temporarily] spared from this fresh chaos, but they’re still dealing with existing tariffs on steel, aluminum, autos, and non-USMCA goods. “Spared” might be overly generous. And a lot of the damage is already done: there’s not a lot of goodwill for our leaders (whomever they may be next month) to lean on in order to sell any trade concessions back to the Canadian public.
Today, the immediate fallout is clear: US markets are bearing the brunt, and there’s plenty of confusion about the administration’s conflicting ambitions. This will also likely be one of the most consequential events in modern economic history. Or it won’t, and we’ll see all of this reversed in a month, with “wins” claimed left and right. One thing is clear—the next move is in the hands of the global leaders whose citizens are going to demand some sort of response.
Anticipating volatility was already baked into our strategies, with an extra emphasis on cash and bonds. This was done not because we have a crystal ball, but because we expected a variety of dislocations and wanted to be ready. But we’re also watching carefully for opportunities, because market disorder always produces clear winners and losers. And with an extra margin of safety, we have options.
Rest assured: we’re all over this, watching every headline, central bank twitch, and corporate reaction. Our clients know from experience that we’re right there beside them, making sure their long-term goals are secure—even when the short-term feels like a buzz cut gone horribly wrong.
As always, we're here to chat about your unique situation.
Sam