Tariff Tantrum 2025: Into the Unknown

There will be an impact from tariffs on the economy, but outside of some simple impacts to the cost of avocados and $Nike(NKE)$ shoes, the biggest changes will largely be second and third-order effects that are unknown, despite every voice in the media saying they know the exact impact. I’ll get to that in a moment. To start, I want to level set what I think the market will be reacting to this week.

1. Most “smart money” thought the threat of tariffs was a negotiating ploy and wouldn’t happen, at least not yet. I expect there to be some surprise for those who thought tariffs would be more targeted and wouldn’t impact their businesses directly.

2. Investors will need to rethink growth assumptions, inflation expectations, and the impact of tariffs on earnings. This may be a tailwind for some companies and a headwind for others, so expect some seemingly strange reactions for individual stocks.

   1. Inflation is the most likely talking point this week and — to be honest — we don’t know what comes next.

3. The crowd screaming “This is a new golden economic era!” will now have to grapple with the realities of policy versus the hope and speculation of rhetoric. Is there a “buy the rumor, sell the news” response?

4. Uncertainty will increase, which likely means stock values will drop and bond rates will go up. I don’t make the rules.

In short, don’t be surprised if the market drops dramatically this week. It may not, but uncertainty around policy, growth, and profits isn’t what investors are looking for.

This is also why I’ve been warning for months that high valuations assume a lot of future growth, which may not come to pass. And it’s why I put on my first short position in the Asymmetric Portfolio as a “special situation” a couple of weeks ago.

Price matters and prices are VERY high.

Multiple compression alone could be bad for the stock market, even if tariffs end up being good for the economy.

Corporate America Grappling With Tariffs

The market overall may be thinking through the impact of tariffs, but it will also directly impact companies and they have some decisions to make.

1. Companies may eat the increased cost, hurting profits.

2. Companies could pass on costs, hurting growth.

3. Companies could in-source or on-shore some manufacturing, which will sacrifice profits short-term for stability long-term.

To be sure, meeting rooms will be busy trying to figure out how to adapt without taking the blame.

The auto industry will likely be the first to feel the pinch because it’s a high-ticket item where tariffs are tangible but don’t discount the impact on companies like $Amazon.com(AMZN)$ $Apple(AAPL)$ $NVIDIA(NVDA)$

We don’t yet know how markets will open on Monday and they may blow off the news. But don’t be surprised by anything and keep in mind where you are looking for opportunities in the market.

Tariff 2nd and 3rd Order Impacts

The direct impact of tariffs can often be predicted for certain items. A car with 25% of parts coming from Mexico may see a 5% increase in cost. An iPhone may be $100 more expensive six months from now.

What’s harder to gauge is the second and third-order impacts that will likely be more meaningful for the economy and businesses long-term.

Is there a boom in economic development and manufacturing in the U.S.?

Does this start a trade war that causes a global recession?

Do more people at home mean more TV time for $Netflix(NFLX)$ watchers and subscriber growth when ESPN goes over the top?

Will there be a real war fought over the shrinking economic pie?

Will there be an explosion in U.S. oil exploration or solar and wind development?

Is China more likely to take Taiwan if this negatively impacts its economy?

What does this do to food prices?

I’m just scratching the surface of questions and consequences we haven’t even thought about. But if this tariff escalation continues there’s sure to be a lot of unknown unknowns for the economy and the market.

Tariffs May Be Good

We also need to acknowledge there may be good from tariffs (even if you’re against them).

If tariffs cause companies to onshore manufacturing it could drive investment in capital expenditures in new jobs.

Demand for new jobs will require new expertise to be developed in the U.S., like manufacturing and materials specialties that have largely been lost to China.

New product cycle times may get shorter if manufacturing is closer to the design center.

Wages could go up.

The U.S. economy could boom.

Tariffs May Be Bad

We also need to acknowledge there may be bad from tariffs (even if you’re for them).

Consumers have benefitted from low-cost goods coming into the U.S. and that may be undone, causing the average person to feel “less wealthy".

Retaliations like reducing currency values may undo any impact of tariffs.

Retaliatory tariffs (which Canada has promised) may reduce U.S. exports.

Gas prices may go up.

There may be a recession.

Companies may cut back on spending given the uncertainty and potentially falling profits.

A black swan may emerge, like in 2007/2008, when a slowing economy unearthed massive risks we didn’t see coming.

What I’m Doing This Week

I’m continuing to look at the long-term and buy companies with asymmetric potential 10-20 years from now.

This week, I’ll be buying stocks, just like I do at the start of every month.

Nothing changes to the frameworks by which I invest.

We haven’t seen any big moves yet, but if there are major dislocations in the coming months I may opportunistically pick up some stocks that are currently too expensive to touch.

For this week, I’m focused on sustainable growth companies that are trading at a value. My buys for the Asymmetric Portfolio will be in premium subscribers’ inboxes before the market opens on Monday.