Updated February 4, 2025
Investing Strategies for Trumps Tariffs
Investing Strategies for Trumps Tariffs
Investing Strategies for Trumps Tariffs
Joseph Gradante, Allio CEO
TheMacroscope
Investing Strategies for Trumps Tariffs
What Do the Trump Tariffs Mean for You and Your Portfolio?
President Trump made tariffs a major campaign theme
The early days of his second term have featured less aggressive rhetoric, but Trump still puts China, Canada, and Mexico in his crosshairs
Tariffs play a crucial role in economic policy, and there are important implications for investors to weigh
President Trump always seeks to make good on his campaign promises. His run for the White House in 2024 centered on an America First agenda, including imposing steep tariffs on many countries, namely China. Once the 45th POTUS became the 47th POTUS, the tone shifted a bit, however. Trump took a more measured stance against China while increasing trade-related pressure on Canada and Mexico. Author of The Art of the Deal during his real-estate mogul days and a highly skilled negotiator when it comes to politics, it remains to be seen how Trump’s tariffs will impact markets over his second term.
On his first day in office, he hinted that a 25% import tax would be levied on our neighbors to the north and south. As a result, the Canadian dollar and Mexican peso weakened as it was initially thought that China would be in the primary tariff crosshairs. Along with leveling the playing field between the US and the world’s second-largest economy, the president noted border security failures and drug-trafficking migrants as being threats to the homeland.
Whether it’s all an opening salvo or a sign of what’s to come between now and January 2029 remains to be seen, but investors can use history as a guide to manage risk and take advantage of opportunities. Keep in mind that stocks performed very well during Trump’s first term before the exogenous shock of COVID-19, also known as the China Virus, struck.
The mainstream media will aim to sensationalize Trump’s endeavors as a scare tactic, suggesting that imminent trade wars will send the global economy into a tailspin. The key thing for investors is to focus on what’s actually happening and how company earnings are impacted. Ray Dalio’s framework helps to cut out the macro noise and stay grounded as President Trump carries out the America First agenda.
Tariffs in History’s Context
Dare to flip on CNN or open the New York Times, and you’ll be blasted with the evils of tariffs and politicians who support them. To be clear, some of the tariffs’ cost is borne by consumers, but they certainly don’t spell economic doom. The data back that up.
Consider that the effective tariff rate in the US was north of 20% before the federal income tax was put in place in 1913. On the first day of his second term, President Trump spoke highly of the 25th POTUS, William McKinley; the effective tariff rate rose to nearly 30% by the time he left office.
US Tariff Rate History: The O-G Tariff King, President McKinley, Oversaw a Major Tariff-Rate Rise
Source: Bloomberg
Goldman Sachs estimates that if a 20-percentage-point increase on imports from China and autos from the European Union (EU) and Mexico is signed into law, then the US effective tariff rate would increase to just 6%, up from the 2-3% range over recent years.
If there’s an across-the-board baseline 10% tax on imports along with an extra 10 percentage points added to goods coming from China and 25 percentage points on Canadian and Mexican imports, then the effective tariff rate could jump to 16%, still far below levels seen around the time of McKinley.
US Effective Tariff Rate History & Goldman Sachs’ Forecasts
Source: Goldman Sachs
Under a Max-Tariff Scenario, the Effective Tariff Rate Could Rise to Near 20%
Source: Apollo Global
Understanding Tariffs and Trade Restrictions
These are interesting facts and figures, certainly, but investors might wonder what all of this means for markets and portfolios. After all, recent cycles have demonstrated that the stock market is not the economy; sussing out signals from noise is critical.
Tariffs are simply taxes imposed on imported goods. They come in many forms and their impact on consumers is nuanced depending on their terms. Here are the most common tariff types:
Import Taxes
President Trump’s tariff ideas generally center on import taxes. These directly raise the cost of imported goods in order to make domestic alternatives more attractive to consumers. The textbook says that a 10% tax on imported steel may encourage higher domestic production, but would also increase costs for manufacturers reliant on steel. Back in Trump’s first term, a 25% import tax was levied on steel imports which eventually extended to the EU, Canada, and Mexico. We saw the price of steel increase at home. It’s important to call out that steel stocks outperformed from November 2016 through the middle of 2018, though.
Embargoes
Trump has not indicated that he’d enforce new embargoes. These outright bans on certain imports or exports are often done for national security reasons. Instead, Trump’s trade policy hones in on using tariffs as a negotiating tactic and to keep foreign countries from taking advantage of the US—he will enforce tariffs if other countries do not come to the table.
Import Quotas
Import quotas are a less severe tactic compared with embargoes. They cap the amount of specific goods that can be imported, thereby limiting competition for producers at home.
Voluntary Export Restraints (VERs)
VERs are less frequently discussed; they are a type of trade restriction and international agreement in which exporters limit the quantity of goods they send to another country, usually to bypass harsher trade restrictions. Now, it’s possible that China, for instance, could construct VERs to avoid harsh US tariffs, so we'll just have to see how the macro picture unfolds.
Anti-Dumping Duties
We shouldn’t see much in the way of anti-dumping duties over the next few years. It’s a type of tariff applied to goods sold below fair value to prevent foreign producers from undercutting US industries.
The key thing for investors to grasp is that the net effect of tariffs can vary while some proposed tariffs might not even be inked into trade policy. There’s no getting around the reality, however, that global conflict (albeit of the cold variety) is on the rise, debt levels around the world have soared, and trade is at the center of today’s changing world order.
The Economic Theory Behind Tariffs
Tariffs are the lynchpin of the America First agenda. President Trump, through his words and potentially via strokes of a pen, seeks to protect US industries and punish nations that have taken advantage of our economy for decades. He executed tariffs beginning primarily in 2018 (year 1 of his first term was focused on overhauling the tax code).
Despite the media and the left’s calls for recession, US GDP continued to grow before the pandemic, but Trump had to pivot policy within certain industries. To protect farmers, the Trump administration issued agriculture subsidies, due in part to negative tariff impacts. It was a real-world cautionary tale that the actual economic effects can be complex. There are other possible downfalls:
Price increases: Tariffs often result in higher consumer prices, usually as a one-time hike
Reduced competition: Hand-cuffing foreign competitors may reduce total competition, allowing domestic producers to expand profit margins and stifling overall innovation
Retaliation: Countries being targeted may respond with their own tariffs, hurting domestic exporters
Deadweight loss: A less free international economic system, one riddled with protectionism, is simply less efficient
Once again, it’s important to realize that tariffs themselves can be a negative for global growth, but if used as a negotiation weapon, they can result in better and fairer trade agreements.
Dalio’s principles underscore the need to examine second- and third-order consequences. In a negative scenario, while cascading tariffs may initially benefit domestic manufacturers, they can eventually trigger adverse supply chain changes, hurting exporters and reducing potential GDP.
Tariffs & Macro Implications
Source: Goldman Sachs
Historical Perspective on Tariffs
As illustrated earlier, the US used to impose heavy tariffs to fund the government. In the 20th century and once again during Trump’s first term, import duties were met with skepticism at best and had sharply negative economic consequences at worst.
Perhaps the most infamous set of tariffs was enacted in 1930 by the Smoot-Hawley Tariff Act. The Act was brought into mainstream culture thanks to Ferris Bueller’s Day Off, but its impact was no laughing matter. Rather than protecting American farmers and manufacturers, the higher import taxes triggered retaliatory tariffs from other countries, reducing global trade and making the Great Depression worse.
More than 50 years later, President Reagan sought to narrow the US trade deficit with Japan. In 1981, he imposed a quota on the number of Japanese vehicles that could come into the US every year. American automakers indeed benefitted, but by raising sticker prices and raking in record profits. While President Trump touts Reagan’s America First policies, taking a blanket approach to import taxes can be risky.
Then, during Trump 1.0, targeted tariffs on Chinese imports didn’t derail US economic growth. Though the left chastised Trump, the Biden administration continued much of his trade agenda.
So, it’s clear throughout history that executing tariffs can be perilous, but when done to prevent other countries from benefitting off the backs of American workers, aggressive talk (and even some policies) can benefit the tariffing nation.
Annual Count of Worldwide Investment Restrictions Jumps from the 2010s
Source: Bank of America, Global Trade Alert
The Promises of Bringing Manufacturing Back to the US
Behind all of the rhetoric, threats, and policy is Trump’s enduring mission to boost the US manufacturing sector. Following the pandemic, the services slice of the domestic economy has rebounded well, evidenced by strong consumer spending and generally positive Purchasing Manager Surveys (PMIs).
Manufacturing, however, has been stuck in neutral. The president aimed to revive US manufacturing in his first term, and the 2024 election served to embolden Trump as he swept the Rust Belt states. Moreover, VP J.D. Vance undoubtedly puts American manufacturing at the top of his policy list.
Bringing manufacturing back to the US means “reshoring” production, cementing energy independence, lowering taxes on American companies, shedding business regulations, and ensuring that the US is the global leader in the AI boom.
Those are tall tasks that most presidents would only talk about. The 47th POTUS, however, has made it clear that he’s serious about breaking the status quo. He signed more than 200 executive orders into law within hours of taking the oath of office, some of them aimed at trade policy (though none explicitly laying out tariffs) and most meant to boost US manufacturing in some form.
Among the many themes is reshoring, or returning manufacturing production from abroad to at home. Tariffs could make imports more expensive, thereby incentivizing companies to produce goods within the US. That would create jobs and stimulate local economies. This approach comes with several challenges, though.
For one thing, it may be difficult to replicate global supply chains which often leverage cheap labor. Also, reshoring may serve to accelerate the use of AI and robotics, potentially limiting the number of traditional blue-collar workers needed. If the US can become the world leader in modern manufacturing, then we could attract more business formation and grow the economy in new ways.
Applying the pressure of tariffs to countries like China, Canada, and Mexico is complementary to lowering taxes within our borders, cutting the red tape, and fostering US energy independence. Taxes were cut during Trump’s first term via the 2017 Tax Cuts and Jobs Act (TJCA), so this time around we might see just minor adjustments to the tax code. Trump has stated that he’d like to reduce the corporate tax rates and make the TJCA permanent. While there’s much criticism around tariffs, there’s little debate that lowering taxes helps households and businesses.
Deregulation is another core aspect of Trump 2.0. The Biden administration took its cue from President Obama’s eight years in office by levying many compliance requirements and, in turn, high regulatory costs on private enterprise. Barriers to entry rose which stymied business growth. Any negative tariff effects can be more than offset by deregulation, particularly for small businesses, banks, and energy companies.
On that note, tariffs may protect US oil and gas producers in the years ahead. We are already the world leader in oil production, and allowing domestic companies to more easily invest in new technology and drill in expanded areas can ensure that the Middle East continues to fade as a global power. A “drill, baby, drill” policy is poised to lower energy costs, which would also benefit US manufacturers and transportation industries.
Dalio’s determinants underscore the importance of manufacturing strength and a focus on innovation & technology. Favorable trade agreements, high economic output, and maintaining reserve currency status can all be realized with the help of tough tariff talk (and even targeted actions).
Maintaining and Enhancing US Competitiveness with AI & Technology
President Trump understands that the US must be the global leader in AI. Just two days into his second term, he announced up to $500 billion in private sector AI investment by companies like OpenAI, Softbank, and Oracle. That takes previous initiatives like the CHIPS Act to the next level to increase domestic semiconductor production, thereby reducing dependence on the volatile Southeast Asia region, namely Taiwan.
Tariffs can be used in conjunction with workforce training programs so that workers’ skills align with the manufacturing systems of the future which may require further public-private partnerships. If done successfully, AI could optimize supply chains and reduce any negative impacts of trade restrictions.
AI and the semiconductor industry are prime examples of how technology, trade, and national security intertwine. Though Trump may appear to have a soft spot for US manufacturing dominance from decades ago, he’s also a visionary and recognizes that an America First agenda must put AI and technology at the top of the list.
What It All Means for Your Money
The portfolio implications for what could be a new trade war are many. First, you must realize that companies today are highly innovative and are focused on rewarding shareholders. It’s also interesting that in the early innings of Trump’s second term, the Industrials sector has performed the best. Price action suggests that while tariff talk may be unnerving, there’s optimism that Trump’s negotiating acumen will eventually lead to a better business climate for US companies.
We should also call out how the US Dollar Index (DXY), perhaps the leading macro indicator, has trended leading up to Trump coming home to the White House. It rallied 14 of 15 weeks ahead of the inauguration, but then dropped as Trump took office. A weaker US dollar could be a boon for US multinational corporations and investors allocated globally. The dollar’s ascent from mid-September 2024 through early 2025 discounted better US economic growth, higher interest rate differentials, and capital inflows. It was a similar move to what happened in late 2016 before the DXY retreated from 104 to 88.
DXY Declined as Trump Took Office
Source: TradingView
Allio’s Macro Dashboard helps investors navigate volatile macro waters through dynamic asset allocation. Our portfolio and allocation technologies help identify which sectors may benefit from shifting government policies and offer diversification across industries and geographies. While stocks are the common focus, we also emphasize risk management through allocations to bonds, interest-earning cash, real estate, commodities, gold, and cryptocurrency. An all-weather portfolio, one described by Dalio, may provide strong risk-adjusted returns no matter the economic outcome of Trump’s tariff agenda.
The Bottom Line
Campaign tariff rhetoric was stern, but Trump adopted a milder tone once he resumed office. The commander-in-chief seeks to level the economic playing field with our major trading partners. There are important implications for investors, and a dynamic approach to asset allocation along with applying Dalio’s principles can help investors reach their goals in the years ahead.
Ultimately, tariffs and related policies will bring about risks and opportunities. It’s important to remember that the actual impacts could be much different than what the media and so-called experts claim will unfold.
Investing Strategies for Trumps Tariffs
What Do the Trump Tariffs Mean for You and Your Portfolio?
President Trump made tariffs a major campaign theme
The early days of his second term have featured less aggressive rhetoric, but Trump still puts China, Canada, and Mexico in his crosshairs
Tariffs play a crucial role in economic policy, and there are important implications for investors to weigh
President Trump always seeks to make good on his campaign promises. His run for the White House in 2024 centered on an America First agenda, including imposing steep tariffs on many countries, namely China. Once the 45th POTUS became the 47th POTUS, the tone shifted a bit, however. Trump took a more measured stance against China while increasing trade-related pressure on Canada and Mexico. Author of The Art of the Deal during his real-estate mogul days and a highly skilled negotiator when it comes to politics, it remains to be seen how Trump’s tariffs will impact markets over his second term.
On his first day in office, he hinted that a 25% import tax would be levied on our neighbors to the north and south. As a result, the Canadian dollar and Mexican peso weakened as it was initially thought that China would be in the primary tariff crosshairs. Along with leveling the playing field between the US and the world’s second-largest economy, the president noted border security failures and drug-trafficking migrants as being threats to the homeland.
Whether it’s all an opening salvo or a sign of what’s to come between now and January 2029 remains to be seen, but investors can use history as a guide to manage risk and take advantage of opportunities. Keep in mind that stocks performed very well during Trump’s first term before the exogenous shock of COVID-19, also known as the China Virus, struck.
The mainstream media will aim to sensationalize Trump’s endeavors as a scare tactic, suggesting that imminent trade wars will send the global economy into a tailspin. The key thing for investors is to focus on what’s actually happening and how company earnings are impacted. Ray Dalio’s framework helps to cut out the macro noise and stay grounded as President Trump carries out the America First agenda.
Tariffs in History’s Context
Dare to flip on CNN or open the New York Times, and you’ll be blasted with the evils of tariffs and politicians who support them. To be clear, some of the tariffs’ cost is borne by consumers, but they certainly don’t spell economic doom. The data back that up.
Consider that the effective tariff rate in the US was north of 20% before the federal income tax was put in place in 1913. On the first day of his second term, President Trump spoke highly of the 25th POTUS, William McKinley; the effective tariff rate rose to nearly 30% by the time he left office.
US Tariff Rate History: The O-G Tariff King, President McKinley, Oversaw a Major Tariff-Rate Rise
Source: Bloomberg
Goldman Sachs estimates that if a 20-percentage-point increase on imports from China and autos from the European Union (EU) and Mexico is signed into law, then the US effective tariff rate would increase to just 6%, up from the 2-3% range over recent years.
If there’s an across-the-board baseline 10% tax on imports along with an extra 10 percentage points added to goods coming from China and 25 percentage points on Canadian and Mexican imports, then the effective tariff rate could jump to 16%, still far below levels seen around the time of McKinley.
US Effective Tariff Rate History & Goldman Sachs’ Forecasts
Source: Goldman Sachs
Under a Max-Tariff Scenario, the Effective Tariff Rate Could Rise to Near 20%
Source: Apollo Global
Understanding Tariffs and Trade Restrictions
These are interesting facts and figures, certainly, but investors might wonder what all of this means for markets and portfolios. After all, recent cycles have demonstrated that the stock market is not the economy; sussing out signals from noise is critical.
Tariffs are simply taxes imposed on imported goods. They come in many forms and their impact on consumers is nuanced depending on their terms. Here are the most common tariff types:
Import Taxes
President Trump’s tariff ideas generally center on import taxes. These directly raise the cost of imported goods in order to make domestic alternatives more attractive to consumers. The textbook says that a 10% tax on imported steel may encourage higher domestic production, but would also increase costs for manufacturers reliant on steel. Back in Trump’s first term, a 25% import tax was levied on steel imports which eventually extended to the EU, Canada, and Mexico. We saw the price of steel increase at home. It’s important to call out that steel stocks outperformed from November 2016 through the middle of 2018, though.
Embargoes
Trump has not indicated that he’d enforce new embargoes. These outright bans on certain imports or exports are often done for national security reasons. Instead, Trump’s trade policy hones in on using tariffs as a negotiating tactic and to keep foreign countries from taking advantage of the US—he will enforce tariffs if other countries do not come to the table.
Import Quotas
Import quotas are a less severe tactic compared with embargoes. They cap the amount of specific goods that can be imported, thereby limiting competition for producers at home.
Voluntary Export Restraints (VERs)
VERs are less frequently discussed; they are a type of trade restriction and international agreement in which exporters limit the quantity of goods they send to another country, usually to bypass harsher trade restrictions. Now, it’s possible that China, for instance, could construct VERs to avoid harsh US tariffs, so we'll just have to see how the macro picture unfolds.
Anti-Dumping Duties
We shouldn’t see much in the way of anti-dumping duties over the next few years. It’s a type of tariff applied to goods sold below fair value to prevent foreign producers from undercutting US industries.
The key thing for investors to grasp is that the net effect of tariffs can vary while some proposed tariffs might not even be inked into trade policy. There’s no getting around the reality, however, that global conflict (albeit of the cold variety) is on the rise, debt levels around the world have soared, and trade is at the center of today’s changing world order.
The Economic Theory Behind Tariffs
Tariffs are the lynchpin of the America First agenda. President Trump, through his words and potentially via strokes of a pen, seeks to protect US industries and punish nations that have taken advantage of our economy for decades. He executed tariffs beginning primarily in 2018 (year 1 of his first term was focused on overhauling the tax code).
Despite the media and the left’s calls for recession, US GDP continued to grow before the pandemic, but Trump had to pivot policy within certain industries. To protect farmers, the Trump administration issued agriculture subsidies, due in part to negative tariff impacts. It was a real-world cautionary tale that the actual economic effects can be complex. There are other possible downfalls:
Price increases: Tariffs often result in higher consumer prices, usually as a one-time hike
Reduced competition: Hand-cuffing foreign competitors may reduce total competition, allowing domestic producers to expand profit margins and stifling overall innovation
Retaliation: Countries being targeted may respond with their own tariffs, hurting domestic exporters
Deadweight loss: A less free international economic system, one riddled with protectionism, is simply less efficient
Once again, it’s important to realize that tariffs themselves can be a negative for global growth, but if used as a negotiation weapon, they can result in better and fairer trade agreements.
Dalio’s principles underscore the need to examine second- and third-order consequences. In a negative scenario, while cascading tariffs may initially benefit domestic manufacturers, they can eventually trigger adverse supply chain changes, hurting exporters and reducing potential GDP.
Tariffs & Macro Implications
Source: Goldman Sachs
Historical Perspective on Tariffs
As illustrated earlier, the US used to impose heavy tariffs to fund the government. In the 20th century and once again during Trump’s first term, import duties were met with skepticism at best and had sharply negative economic consequences at worst.
Perhaps the most infamous set of tariffs was enacted in 1930 by the Smoot-Hawley Tariff Act. The Act was brought into mainstream culture thanks to Ferris Bueller’s Day Off, but its impact was no laughing matter. Rather than protecting American farmers and manufacturers, the higher import taxes triggered retaliatory tariffs from other countries, reducing global trade and making the Great Depression worse.
More than 50 years later, President Reagan sought to narrow the US trade deficit with Japan. In 1981, he imposed a quota on the number of Japanese vehicles that could come into the US every year. American automakers indeed benefitted, but by raising sticker prices and raking in record profits. While President Trump touts Reagan’s America First policies, taking a blanket approach to import taxes can be risky.
Then, during Trump 1.0, targeted tariffs on Chinese imports didn’t derail US economic growth. Though the left chastised Trump, the Biden administration continued much of his trade agenda.
So, it’s clear throughout history that executing tariffs can be perilous, but when done to prevent other countries from benefitting off the backs of American workers, aggressive talk (and even some policies) can benefit the tariffing nation.
Annual Count of Worldwide Investment Restrictions Jumps from the 2010s
Source: Bank of America, Global Trade Alert
The Promises of Bringing Manufacturing Back to the US
Behind all of the rhetoric, threats, and policy is Trump’s enduring mission to boost the US manufacturing sector. Following the pandemic, the services slice of the domestic economy has rebounded well, evidenced by strong consumer spending and generally positive Purchasing Manager Surveys (PMIs).
Manufacturing, however, has been stuck in neutral. The president aimed to revive US manufacturing in his first term, and the 2024 election served to embolden Trump as he swept the Rust Belt states. Moreover, VP J.D. Vance undoubtedly puts American manufacturing at the top of his policy list.
Bringing manufacturing back to the US means “reshoring” production, cementing energy independence, lowering taxes on American companies, shedding business regulations, and ensuring that the US is the global leader in the AI boom.
Those are tall tasks that most presidents would only talk about. The 47th POTUS, however, has made it clear that he’s serious about breaking the status quo. He signed more than 200 executive orders into law within hours of taking the oath of office, some of them aimed at trade policy (though none explicitly laying out tariffs) and most meant to boost US manufacturing in some form.
Among the many themes is reshoring, or returning manufacturing production from abroad to at home. Tariffs could make imports more expensive, thereby incentivizing companies to produce goods within the US. That would create jobs and stimulate local economies. This approach comes with several challenges, though.
For one thing, it may be difficult to replicate global supply chains which often leverage cheap labor. Also, reshoring may serve to accelerate the use of AI and robotics, potentially limiting the number of traditional blue-collar workers needed. If the US can become the world leader in modern manufacturing, then we could attract more business formation and grow the economy in new ways.
Applying the pressure of tariffs to countries like China, Canada, and Mexico is complementary to lowering taxes within our borders, cutting the red tape, and fostering US energy independence. Taxes were cut during Trump’s first term via the 2017 Tax Cuts and Jobs Act (TJCA), so this time around we might see just minor adjustments to the tax code. Trump has stated that he’d like to reduce the corporate tax rates and make the TJCA permanent. While there’s much criticism around tariffs, there’s little debate that lowering taxes helps households and businesses.
Deregulation is another core aspect of Trump 2.0. The Biden administration took its cue from President Obama’s eight years in office by levying many compliance requirements and, in turn, high regulatory costs on private enterprise. Barriers to entry rose which stymied business growth. Any negative tariff effects can be more than offset by deregulation, particularly for small businesses, banks, and energy companies.
On that note, tariffs may protect US oil and gas producers in the years ahead. We are already the world leader in oil production, and allowing domestic companies to more easily invest in new technology and drill in expanded areas can ensure that the Middle East continues to fade as a global power. A “drill, baby, drill” policy is poised to lower energy costs, which would also benefit US manufacturers and transportation industries.
Dalio’s determinants underscore the importance of manufacturing strength and a focus on innovation & technology. Favorable trade agreements, high economic output, and maintaining reserve currency status can all be realized with the help of tough tariff talk (and even targeted actions).
Maintaining and Enhancing US Competitiveness with AI & Technology
President Trump understands that the US must be the global leader in AI. Just two days into his second term, he announced up to $500 billion in private sector AI investment by companies like OpenAI, Softbank, and Oracle. That takes previous initiatives like the CHIPS Act to the next level to increase domestic semiconductor production, thereby reducing dependence on the volatile Southeast Asia region, namely Taiwan.
Tariffs can be used in conjunction with workforce training programs so that workers’ skills align with the manufacturing systems of the future which may require further public-private partnerships. If done successfully, AI could optimize supply chains and reduce any negative impacts of trade restrictions.
AI and the semiconductor industry are prime examples of how technology, trade, and national security intertwine. Though Trump may appear to have a soft spot for US manufacturing dominance from decades ago, he’s also a visionary and recognizes that an America First agenda must put AI and technology at the top of the list.
What It All Means for Your Money
The portfolio implications for what could be a new trade war are many. First, you must realize that companies today are highly innovative and are focused on rewarding shareholders. It’s also interesting that in the early innings of Trump’s second term, the Industrials sector has performed the best. Price action suggests that while tariff talk may be unnerving, there’s optimism that Trump’s negotiating acumen will eventually lead to a better business climate for US companies.
We should also call out how the US Dollar Index (DXY), perhaps the leading macro indicator, has trended leading up to Trump coming home to the White House. It rallied 14 of 15 weeks ahead of the inauguration, but then dropped as Trump took office. A weaker US dollar could be a boon for US multinational corporations and investors allocated globally. The dollar’s ascent from mid-September 2024 through early 2025 discounted better US economic growth, higher interest rate differentials, and capital inflows. It was a similar move to what happened in late 2016 before the DXY retreated from 104 to 88.
DXY Declined as Trump Took Office
Source: TradingView
Allio’s Macro Dashboard helps investors navigate volatile macro waters through dynamic asset allocation. Our portfolio and allocation technologies help identify which sectors may benefit from shifting government policies and offer diversification across industries and geographies. While stocks are the common focus, we also emphasize risk management through allocations to bonds, interest-earning cash, real estate, commodities, gold, and cryptocurrency. An all-weather portfolio, one described by Dalio, may provide strong risk-adjusted returns no matter the economic outcome of Trump’s tariff agenda.
The Bottom Line
Campaign tariff rhetoric was stern, but Trump adopted a milder tone once he resumed office. The commander-in-chief seeks to level the economic playing field with our major trading partners. There are important implications for investors, and a dynamic approach to asset allocation along with applying Dalio’s principles can help investors reach their goals in the years ahead.
Ultimately, tariffs and related policies will bring about risks and opportunities. It’s important to remember that the actual impacts could be much different than what the media and so-called experts claim will unfold.
Investing Strategies for Trumps Tariffs
What Do the Trump Tariffs Mean for You and Your Portfolio?
President Trump made tariffs a major campaign theme
The early days of his second term have featured less aggressive rhetoric, but Trump still puts China, Canada, and Mexico in his crosshairs
Tariffs play a crucial role in economic policy, and there are important implications for investors to weigh
President Trump always seeks to make good on his campaign promises. His run for the White House in 2024 centered on an America First agenda, including imposing steep tariffs on many countries, namely China. Once the 45th POTUS became the 47th POTUS, the tone shifted a bit, however. Trump took a more measured stance against China while increasing trade-related pressure on Canada and Mexico. Author of The Art of the Deal during his real-estate mogul days and a highly skilled negotiator when it comes to politics, it remains to be seen how Trump’s tariffs will impact markets over his second term.
On his first day in office, he hinted that a 25% import tax would be levied on our neighbors to the north and south. As a result, the Canadian dollar and Mexican peso weakened as it was initially thought that China would be in the primary tariff crosshairs. Along with leveling the playing field between the US and the world’s second-largest economy, the president noted border security failures and drug-trafficking migrants as being threats to the homeland.
Whether it’s all an opening salvo or a sign of what’s to come between now and January 2029 remains to be seen, but investors can use history as a guide to manage risk and take advantage of opportunities. Keep in mind that stocks performed very well during Trump’s first term before the exogenous shock of COVID-19, also known as the China Virus, struck.
The mainstream media will aim to sensationalize Trump’s endeavors as a scare tactic, suggesting that imminent trade wars will send the global economy into a tailspin. The key thing for investors is to focus on what’s actually happening and how company earnings are impacted. Ray Dalio’s framework helps to cut out the macro noise and stay grounded as President Trump carries out the America First agenda.
Tariffs in History’s Context
Dare to flip on CNN or open the New York Times, and you’ll be blasted with the evils of tariffs and politicians who support them. To be clear, some of the tariffs’ cost is borne by consumers, but they certainly don’t spell economic doom. The data back that up.
Consider that the effective tariff rate in the US was north of 20% before the federal income tax was put in place in 1913. On the first day of his second term, President Trump spoke highly of the 25th POTUS, William McKinley; the effective tariff rate rose to nearly 30% by the time he left office.
US Tariff Rate History: The O-G Tariff King, President McKinley, Oversaw a Major Tariff-Rate Rise
Source: Bloomberg
Goldman Sachs estimates that if a 20-percentage-point increase on imports from China and autos from the European Union (EU) and Mexico is signed into law, then the US effective tariff rate would increase to just 6%, up from the 2-3% range over recent years.
If there’s an across-the-board baseline 10% tax on imports along with an extra 10 percentage points added to goods coming from China and 25 percentage points on Canadian and Mexican imports, then the effective tariff rate could jump to 16%, still far below levels seen around the time of McKinley.
US Effective Tariff Rate History & Goldman Sachs’ Forecasts
Source: Goldman Sachs
Under a Max-Tariff Scenario, the Effective Tariff Rate Could Rise to Near 20%
Source: Apollo Global
Understanding Tariffs and Trade Restrictions
These are interesting facts and figures, certainly, but investors might wonder what all of this means for markets and portfolios. After all, recent cycles have demonstrated that the stock market is not the economy; sussing out signals from noise is critical.
Tariffs are simply taxes imposed on imported goods. They come in many forms and their impact on consumers is nuanced depending on their terms. Here are the most common tariff types:
Import Taxes
President Trump’s tariff ideas generally center on import taxes. These directly raise the cost of imported goods in order to make domestic alternatives more attractive to consumers. The textbook says that a 10% tax on imported steel may encourage higher domestic production, but would also increase costs for manufacturers reliant on steel. Back in Trump’s first term, a 25% import tax was levied on steel imports which eventually extended to the EU, Canada, and Mexico. We saw the price of steel increase at home. It’s important to call out that steel stocks outperformed from November 2016 through the middle of 2018, though.
Embargoes
Trump has not indicated that he’d enforce new embargoes. These outright bans on certain imports or exports are often done for national security reasons. Instead, Trump’s trade policy hones in on using tariffs as a negotiating tactic and to keep foreign countries from taking advantage of the US—he will enforce tariffs if other countries do not come to the table.
Import Quotas
Import quotas are a less severe tactic compared with embargoes. They cap the amount of specific goods that can be imported, thereby limiting competition for producers at home.
Voluntary Export Restraints (VERs)
VERs are less frequently discussed; they are a type of trade restriction and international agreement in which exporters limit the quantity of goods they send to another country, usually to bypass harsher trade restrictions. Now, it’s possible that China, for instance, could construct VERs to avoid harsh US tariffs, so we'll just have to see how the macro picture unfolds.
Anti-Dumping Duties
We shouldn’t see much in the way of anti-dumping duties over the next few years. It’s a type of tariff applied to goods sold below fair value to prevent foreign producers from undercutting US industries.
The key thing for investors to grasp is that the net effect of tariffs can vary while some proposed tariffs might not even be inked into trade policy. There’s no getting around the reality, however, that global conflict (albeit of the cold variety) is on the rise, debt levels around the world have soared, and trade is at the center of today’s changing world order.
The Economic Theory Behind Tariffs
Tariffs are the lynchpin of the America First agenda. President Trump, through his words and potentially via strokes of a pen, seeks to protect US industries and punish nations that have taken advantage of our economy for decades. He executed tariffs beginning primarily in 2018 (year 1 of his first term was focused on overhauling the tax code).
Despite the media and the left’s calls for recession, US GDP continued to grow before the pandemic, but Trump had to pivot policy within certain industries. To protect farmers, the Trump administration issued agriculture subsidies, due in part to negative tariff impacts. It was a real-world cautionary tale that the actual economic effects can be complex. There are other possible downfalls:
Price increases: Tariffs often result in higher consumer prices, usually as a one-time hike
Reduced competition: Hand-cuffing foreign competitors may reduce total competition, allowing domestic producers to expand profit margins and stifling overall innovation
Retaliation: Countries being targeted may respond with their own tariffs, hurting domestic exporters
Deadweight loss: A less free international economic system, one riddled with protectionism, is simply less efficient
Once again, it’s important to realize that tariffs themselves can be a negative for global growth, but if used as a negotiation weapon, they can result in better and fairer trade agreements.
Dalio’s principles underscore the need to examine second- and third-order consequences. In a negative scenario, while cascading tariffs may initially benefit domestic manufacturers, they can eventually trigger adverse supply chain changes, hurting exporters and reducing potential GDP.
Tariffs & Macro Implications
Source: Goldman Sachs
Historical Perspective on Tariffs
As illustrated earlier, the US used to impose heavy tariffs to fund the government. In the 20th century and once again during Trump’s first term, import duties were met with skepticism at best and had sharply negative economic consequences at worst.
Perhaps the most infamous set of tariffs was enacted in 1930 by the Smoot-Hawley Tariff Act. The Act was brought into mainstream culture thanks to Ferris Bueller’s Day Off, but its impact was no laughing matter. Rather than protecting American farmers and manufacturers, the higher import taxes triggered retaliatory tariffs from other countries, reducing global trade and making the Great Depression worse.
More than 50 years later, President Reagan sought to narrow the US trade deficit with Japan. In 1981, he imposed a quota on the number of Japanese vehicles that could come into the US every year. American automakers indeed benefitted, but by raising sticker prices and raking in record profits. While President Trump touts Reagan’s America First policies, taking a blanket approach to import taxes can be risky.
Then, during Trump 1.0, targeted tariffs on Chinese imports didn’t derail US economic growth. Though the left chastised Trump, the Biden administration continued much of his trade agenda.
So, it’s clear throughout history that executing tariffs can be perilous, but when done to prevent other countries from benefitting off the backs of American workers, aggressive talk (and even some policies) can benefit the tariffing nation.
Annual Count of Worldwide Investment Restrictions Jumps from the 2010s
Source: Bank of America, Global Trade Alert
The Promises of Bringing Manufacturing Back to the US
Behind all of the rhetoric, threats, and policy is Trump’s enduring mission to boost the US manufacturing sector. Following the pandemic, the services slice of the domestic economy has rebounded well, evidenced by strong consumer spending and generally positive Purchasing Manager Surveys (PMIs).
Manufacturing, however, has been stuck in neutral. The president aimed to revive US manufacturing in his first term, and the 2024 election served to embolden Trump as he swept the Rust Belt states. Moreover, VP J.D. Vance undoubtedly puts American manufacturing at the top of his policy list.
Bringing manufacturing back to the US means “reshoring” production, cementing energy independence, lowering taxes on American companies, shedding business regulations, and ensuring that the US is the global leader in the AI boom.
Those are tall tasks that most presidents would only talk about. The 47th POTUS, however, has made it clear that he’s serious about breaking the status quo. He signed more than 200 executive orders into law within hours of taking the oath of office, some of them aimed at trade policy (though none explicitly laying out tariffs) and most meant to boost US manufacturing in some form.
Among the many themes is reshoring, or returning manufacturing production from abroad to at home. Tariffs could make imports more expensive, thereby incentivizing companies to produce goods within the US. That would create jobs and stimulate local economies. This approach comes with several challenges, though.
For one thing, it may be difficult to replicate global supply chains which often leverage cheap labor. Also, reshoring may serve to accelerate the use of AI and robotics, potentially limiting the number of traditional blue-collar workers needed. If the US can become the world leader in modern manufacturing, then we could attract more business formation and grow the economy in new ways.
Applying the pressure of tariffs to countries like China, Canada, and Mexico is complementary to lowering taxes within our borders, cutting the red tape, and fostering US energy independence. Taxes were cut during Trump’s first term via the 2017 Tax Cuts and Jobs Act (TJCA), so this time around we might see just minor adjustments to the tax code. Trump has stated that he’d like to reduce the corporate tax rates and make the TJCA permanent. While there’s much criticism around tariffs, there’s little debate that lowering taxes helps households and businesses.
Deregulation is another core aspect of Trump 2.0. The Biden administration took its cue from President Obama’s eight years in office by levying many compliance requirements and, in turn, high regulatory costs on private enterprise. Barriers to entry rose which stymied business growth. Any negative tariff effects can be more than offset by deregulation, particularly for small businesses, banks, and energy companies.
On that note, tariffs may protect US oil and gas producers in the years ahead. We are already the world leader in oil production, and allowing domestic companies to more easily invest in new technology and drill in expanded areas can ensure that the Middle East continues to fade as a global power. A “drill, baby, drill” policy is poised to lower energy costs, which would also benefit US manufacturers and transportation industries.
Dalio’s determinants underscore the importance of manufacturing strength and a focus on innovation & technology. Favorable trade agreements, high economic output, and maintaining reserve currency status can all be realized with the help of tough tariff talk (and even targeted actions).
Maintaining and Enhancing US Competitiveness with AI & Technology
President Trump understands that the US must be the global leader in AI. Just two days into his second term, he announced up to $500 billion in private sector AI investment by companies like OpenAI, Softbank, and Oracle. That takes previous initiatives like the CHIPS Act to the next level to increase domestic semiconductor production, thereby reducing dependence on the volatile Southeast Asia region, namely Taiwan.
Tariffs can be used in conjunction with workforce training programs so that workers’ skills align with the manufacturing systems of the future which may require further public-private partnerships. If done successfully, AI could optimize supply chains and reduce any negative impacts of trade restrictions.
AI and the semiconductor industry are prime examples of how technology, trade, and national security intertwine. Though Trump may appear to have a soft spot for US manufacturing dominance from decades ago, he’s also a visionary and recognizes that an America First agenda must put AI and technology at the top of the list.
What It All Means for Your Money
The portfolio implications for what could be a new trade war are many. First, you must realize that companies today are highly innovative and are focused on rewarding shareholders. It’s also interesting that in the early innings of Trump’s second term, the Industrials sector has performed the best. Price action suggests that while tariff talk may be unnerving, there’s optimism that Trump’s negotiating acumen will eventually lead to a better business climate for US companies.
We should also call out how the US Dollar Index (DXY), perhaps the leading macro indicator, has trended leading up to Trump coming home to the White House. It rallied 14 of 15 weeks ahead of the inauguration, but then dropped as Trump took office. A weaker US dollar could be a boon for US multinational corporations and investors allocated globally. The dollar’s ascent from mid-September 2024 through early 2025 discounted better US economic growth, higher interest rate differentials, and capital inflows. It was a similar move to what happened in late 2016 before the DXY retreated from 104 to 88.
DXY Declined as Trump Took Office
Source: TradingView
Allio’s Macro Dashboard helps investors navigate volatile macro waters through dynamic asset allocation. Our portfolio and allocation technologies help identify which sectors may benefit from shifting government policies and offer diversification across industries and geographies. While stocks are the common focus, we also emphasize risk management through allocations to bonds, interest-earning cash, real estate, commodities, gold, and cryptocurrency. An all-weather portfolio, one described by Dalio, may provide strong risk-adjusted returns no matter the economic outcome of Trump’s tariff agenda.
The Bottom Line
Campaign tariff rhetoric was stern, but Trump adopted a milder tone once he resumed office. The commander-in-chief seeks to level the economic playing field with our major trading partners. There are important implications for investors, and a dynamic approach to asset allocation along with applying Dalio’s principles can help investors reach their goals in the years ahead.
Ultimately, tariffs and related policies will bring about risks and opportunities. It’s important to remember that the actual impacts could be much different than what the media and so-called experts claim will unfold.
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Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
Disclosures
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, Allio Capital does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Performance could be volatile; an investment in a fund or an account may lose money.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
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Allio Advisers LLC ("Allio") is an SEC registered investment adviser. By using this website, you accept our Terms of Service and our Privacy Policy. Allio's investment advisory services are available only to residents of the United States. Nothing on this website should be considered an offer, recommendation, solicitation of an offer, or advice to buy or sell any security. The information provided herein is for informational and general educational purposes only and is not investment or financial advice. Additionally, Allio does not provide tax advice and investors are encouraged to consult with their tax advisor. By law, we must provide investment advice that is in the best interest of our client. Please refer to Allio's ADV Part 2A Brochure for important additional information. Please see our Customer Relationship Summary.
Online trading has inherent risk due to system response, execution price, speed, liquidity, market data and access times that may vary due to market conditions, system performance, market volatility, size and type of order and other factors. An investor should understand these and additional risks before trading. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Past performance is no guarantee of future results.
Brokerage services will be provided to Allio clients through Allio Markets LLC, ("Allio Markets") SEC-registered broker-dealer and member FINRA/SIPC . Securities in your account protected up to $500,000. For details, please see www.sipc.org. Allio Advisers LLC and Allio Markets LLC are separate but affiliated companies.
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Any investment , trade-related or brokerage questions shall be communicated to support@alliocapital.com
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What We Do
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Allio Advisers LLC ("Allio") is an SEC registered investment adviser. By using this website, you accept our Terms of Service and our Privacy Policy. Allio's investment advisory services are available only to residents of the United States. Nothing on this website should be considered an offer, recommendation, solicitation of an offer, or advice to buy or sell any security. The information provided herein is for informational and general educational purposes only and is not investment or financial advice. Additionally, Allio does not provide tax advice and investors are encouraged to consult with their tax advisor. By law, we must provide investment advice that is in the best interest of our client. Please refer to Allio's ADV Part 2A Brochure for important additional information. Please see our Customer Relationship Summary.
Online trading has inherent risk due to system response, execution price, speed, liquidity, market data and access times that may vary due to market conditions, system performance, market volatility, size and type of order and other factors. An investor should understand these and additional risks before trading. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Past performance is no guarantee of future results.
Brokerage services will be provided to Allio clients through Allio Markets LLC, ("Allio Markets") SEC-registered broker-dealer and member FINRA/SIPC . Securities in your account protected up to $500,000. For details, please see www.sipc.org. Allio Advisers LLC and Allio Markets LLC are separate but affiliated companies.
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