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Advisors Shore Up Portfolios Ahead of Trump Tariffs

The markets may not have priced in tariff threats, but diversifying exposures sure can help.

Photo of Donald Trump
Photo by Gage Skidmore via CC BY-SA 2.0

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That morning latte and avocado toast could get a lot pricier.

Long-awaited tariffs of additional 10% on imports from China are slated to go into effect today, after levies on Canada and Mexico were pushed back late yesterday. And, the European Union could be up next. Experts say import-dependent sectors, like Big Tech and the automotive industry, are firmly in the line of fire, as well as certain commodities, like oil and gas, and you guessed it … coffee and avocados. 

Sure, President Trump has used tariffs as negotiation tactics before and some argue that the eventual levies end up being less dramatic than first advertised. Still, the uncertainty is forcing advisors to consider shoring up their client portfolios in the near term to help navigate what could turn into a global standoff. “Investors are well-timed to think about portfolio hedges,” said Paisley Nardini, managing director at Simplify Asset Management. 

Watch Out for the Tariff-raff 

The markets have largely not priced in tariff threats yet, but diversifying equity exposures can help fend off any adverse effects, Nardini said. She suggested building in tail-risk hedges to help smooth out extreme stock market swings, or adding leveraged strategies that can hedge losses. “Strategies, which can dynamically adjust, can be prudent ways to actively manage unknown risks,” she said.

Higher inflation is certainly expected, according to a JPMorgan report. Just 10% hikes could take overall US tariffs to 50-year highs and possibly to levels not seen in almost a century. The 2018 US-China trade war increased prices by 30 basis-points alone, the research found. Not to mention, there’s the risk of inciting that whole trade-war thing with our neighbors. The January report found: 

  • Prices could rise by 40 basis points over the next two years, due, in large part, to significantly higher tariffs on China.
  • The ensuing inflation could force the Federal Reserve to keep interest rates higher for longer. JPMorgan analysts expect the rate to fall to just 3.5% to 3.75% by the end of the year.

“Until we have certainty on timing, scope and amounts of proposed tariffs, making widespread portfolio changes may be ill-advised,” Nardini told The Daily Upside.

Did You Study Abroad? International equities have lagged domestic benchmarks over the better part of a decade, but that could be changing. While tariffs are a global problem, the downside risk could be greatest here in the US, said Dan Petersen, director of ETFs at New York Life Investments. With soaring valuations and a historically over-concentrated stock market, advisors may want to take another look at foreign stocks for safer harbors. Top holdings in New York Life’s international equity ETF that Petersen oversees include Germany’s SAP ES, Netherland’s ASML, and Denmark’s Novo Nordisk.

“With everything happening in the political arena, tariffs are definitely playing into those decisions,” he told The Daily Upside.