A slew of heavy tariffs imposed on Canada, Mexico and China by U.S. President Donald Trump will likely be inflationary and will create an environment in which the Federal Reserve will not be able to cut interest rates, said Andrzej Skiba, managing director and head of BlueBay U.S. fixed income at RBC Global Asset Management.
Skiba further warned that this is only the beginning of Trump’s tariff program, with new levies expected to hit Europe “over the coming weeks.” RBC Global Asset Management has $484 billion in assets under management.
Other asset managers agreed that recession is now much more likely given that tariffs are no longer a threat, but instead are a reality.
Barbara Reinhard, chief investment officer of multi-asset strategies and solutions at Voya Investment Management, warned that these tariffs will likely throw Mexico and Canada into recession and also raises the odds of 25% tariffs on the EU, “which will likely put a halt to Europe’s recent equity market run and outperformance versus the U.S.” Voya has $339 billion in AUM.
In a March 3 note to clients, David Kelly, chief global strategist at J.P. Morgan Asset Management, said the trouble with tariffs is that they “raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions.” J.P. Morgan Asset Management has $3.6 trillion in AUM.
Trump’s 25% tariffs on goods imported from Canada and Mexico took effect March 4, with an additional 10% tariff on Canadian energy products. Also, a 10% tariff that Trump slapped on Chinese goods in February was doubled to 20%.
In retaliation, the government of Canadian Prime Minister Justin Trudeau imposed a 25% tariff on C$155 billion ($107 billion) of U.S. goods.
In a statement, Trudeau said: “There is no justification for these (tariff) actions.” He added: “Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures.”
The Chinese government also reportedly retaliated by imposing tariffs of up to 15% on various U.S. farm exports.
In addition, the president of Mexico Claudia Sheinbaum said she will unveil a response to Trump’s tariffs on March 9.
The White House added in a March 3 statement that the tariffs were necessary, in part, to “combat the extraordinary threat to U.S. national security, including our public health posed by unchecked drug trafficking,” and to halt the “influx of illegal aliens” from both the northern and southern borders.
Saira Malik, CIO and head of equities and fixed income at Nuveen, said any hopes by investors that tariffs on Mexico and Canada were a negotiating tactic by Trump have been erased.
“Markets are now focused on the risks around retaliation, inflation acceleration and a growth scare,” she added. “Equity markets are currently pricing in three (interest) rate cuts for 2025 given the expected impact of tariffs on economic growth.” Nuveen has $1.3 trillion in AUM.
But Clark Geranen, chief market strategist at CalBay Investments, thinks the tariffs might be indeed be a negotiating tactic by Trump and cautioned that it is “extremely difficult” for investors to make investing decisions based on tariff news.
Inherently depressive
As such, he urged investors to avoid making any drastic portfolio moves because of tariffs.
“If the past month is any indication, tariffs are a negotiation tool and are subject to change, sometimes within hours of their announcement,” he added. “While Tuesday's tariffs are a ‘go,’ it remains very unclear on just how long these tariffs will remain. We tend to believe these are more of a negotiation tactic and not the start of a long and drawn out reciprocal trade war.”
Referring to Trump’s planned address to Congress on the night of March 4, Geranen added that Trump adopts a more dovish tone on tariffs, “that could help to alleviate investor tariff fears and help the stock market find a bottom after this past month of volatility.” CalBay has $1.25 billion in AUM.
Jordan Rizzuto, managing partner and CIO at GammaRoad Capital Partners, a research firm that develops systematic investment strategies to improve traditional portfolios, views tariffs as “inherently depressive for economic growth and ultimately inflationary, and as such we would expect them to have a bearish influence on equities.”
These tariffs could also put pressure on fixed income assets, Skiba of RBC noted, and he sees “more spread widening and risk ahead.”
As a result, Skiba favors short duration assets, and “as volatility picks up, we hope to reengage with the asset class at better entry points once the dust settles.”
Malik of Nuveen said her firm is “cautious around chasing duration given the competing headwinds on growth, inflation and tariff rhetoric.”
Rather, she recommends that investors increase their exposure to “quality segments in U.S. credit such as senior loans, where fundamentals remain strong against a backdrop of higher for longer yields.”
Eric Sterner, CIO at Apollon Wealth Management, thinks Trump will backtrack from these tariffs on Canada and Mexico as he “witnesses the damages to the economic outlook and the equity markets.”
“I believe tariffs will be put in place at lower levels and across a more specific set of goods,” he added. Apollon has $9 billion in AUM.
Mike Rode, senior investment director, American Century Investments, said in the near-term, it will be hard for small- and mid-cap stocks to work around the tariffs, unlike large cap stocks which have much more complex supply chains.
“The ultimate goal of tariffs is to accelerate reshoring, which would be a major positive for small and mid-cap stocks in the intermediate to long term,” he added. American Century has $270 billion in AUM.
Michael Rosner, managing director and private wealth adviser at Raymond James, said there is elevated uncertainty about the duration of Trump's tariff announcement and “markets dislike uncertainty, which is why investors are taking chips off of the table in the stock market and rotating into safer areas of the market, such as bonds and gold.”
Rosner added however that the markets have experience with navigating tariffs, and the market was able to largely withstand tariffs back in 2019 and 2018, albeit with elevated volatility.
“It's important for investors to be aware of the short-term volatility that tariff headlines cause, but remain focused on longer-term market fundamentals, which remain strong.” he added. Raymond James has approximately $1.56 trillion in assets under management.
