Can't say in thirty five years in the industry I've written about the same topic idea three times. But what can I say? My face is beyond sore from all the tariff blows. Tariffs are relevant to 401k plan sponsors as the impacts of tariffs are driving market volatility. Employees are certainly seeing this in their daily 401k balances.
The recent 90-day pause in U.S. tariffs was primarily driven by escalating economic uncertainty and market instability. President Trump suspended planned tariff increases on most trading partners—excluding China—after steep market sell-offs, rising inflation expectations, and growing concerns over a potential recession. Perhaps the penguins are celebrating?
The pause reduced tariffs for many countries to a baseline 10%, while China continues to face elevated duties of up to 145%. This constant course correction is creating market volatility with the stock market rising and plunging like an out-of-control roller coaster. Of particular note (and a perfect summation) was RH CEO Gary Friedman's comment during his 4th quarter earnings call. His reaction to the tariffs' impact on his company stock has been immortalized on the Internet.
This abrupt policy shift aimed to stabilize financial markets and address domestic economic pressures. However, it has introduced further uncertainty, as the administration has not ruled out future tariff escalations. Analysts, including those at BlackRock, have noted that while the pause offers temporary relief, the lack of a clear long-term strategy continues to unsettle investors.
The tariff pause appears to be a reactive measure to immediate economic challenges rather than a shift toward a stable trade policy. Perhaps external volatility is leading cooler heads to try to stabilize what is happening?
On the good side, the volatility appears to be contained to the equity markets so far. The markets are trying to find a price at which investors are willing to pay for a company’s cashflow but that cashflow is unpredictable because tariffs are changing constantly. Tariffs impact profit margins which translates to a company's cashflow. It will be interesting to see how the April 15 Treasury Bond auction unfolds.
The issue though is larger than tariffs. It is an incorrect perception of how the world works, I feel. In negotiations, there is a value creation approach (think win-win or win-win-no deal) and there is the value claim approach. In the latter, one party asserts that the other party has taken something of value from the first party and the first party wants that thing back.
The value claim approach can be very imprecise and subject to rhetoric, hot air, and unfounded or inflated claims. Trump's use of the reciprocal tariff formula is designed to maximize the dollar value of his value claim approach. There is a place for a value claim approach but in this case, the position appears to be one of "The world is picking on the US and so I am going to make everyone pay...while ignoring what those actions mean to the US consumer and investor". This approach also ignores the long-term damage to the US reputation as well as the financial consequences to US companies.
My best guess is that Trump is seeking different trading terms between the US and other countries. You might look at this as a global reset versus a deglobailization or protectionism approach. Markets however like certainty and can act based on a clear path. The current path is not clear and frankly is not a path at all but rather a perceived series of random movements.
As I alluded to in the 2008 recession and during the COVID years, it is during the tough markets that 401k advisors work even harder. I can't even begin to tell you how many one on one Zooms I have had talking with employees about current conditions.
The Parting Glass
Markets are volatile and emotional and this is all the more reason to keep a cool head. Review your investment asset allocation and diversification. Make sure your investments align with your time horizon, risk appetite, and values. May there be calmer waters ahead.