In response to President Donald Trump’s introduction of heavy tariffs on foreign imports, Vanguard Group cautioned its clients to refrain from making any hasty allocation changes to their portfolios, saying that the “situation remains fluid.”
In an April 2 note to its clients, Vanguard conceded that “higher tariffs and other barriers to trade are apt to slow economic activity and lift inflation rates, at least in the short run.”
In the intermediate to long term, the asset manager noted, trading partners “are likely to adjust their policies, representatives of affected countries are likely to negotiate with one another, further policy adjustments may follow, companies and consumers may reconsider their saving, spending, and investment options,” and “central bankers may reconsider their policies in pursuit of sustainable economic growth and stable prices.”
On the whole, Vanguard assured that a “dynamic global economy almost certainly will adjust.”
Vanguard cautioned against making any tactical portfolio changes.
“Given potential tariff countermeasures and their effects, Vanguard believes it would be imprudent to attempt to identify specific investment implications immediately following the announcement,” the firm said. “Financial markets may respond quickly to developments as they unfold in the near term, but we caution long-term investors against reacting with tactical or short-term changes to well-considered investment plans.”
Video from Vanguard
On April 2 Trump unveiled a slew of tariffs that included, among other things, a minimum baseline of 10% tariffs on all countries and 25% tariffs on automobiles imported from other nations. Global markets have sold off since the announcement – since the market close of April 2, the S&P 500 index plunged about 10.5% through the close of April 4.
In a video posted on Vanguard’s website, Joseph H. Davis, Vanguard's global chief economist and global head of the investment strategy group, described Trump’s tariffs as “one of the larger trade shocks we could have seen in over almost a century. So just even saying that is pretty profound.”
Going into the year, Davis said, Vanguard was assuming that the U.S. would implement some tariffs, given policymakers' intents.
“But what we have seen since that time is not only those enactments, but some additional tariffs that have been higher in the rate and broader,” Davis said. “And so, clearly, that is going to have economic ramifications… It's a significant shock. And then you're going to have, of course, the markets processing the second-round effects, retaliation, potentially, of other countries.”
Davis also said that the tariffs will likely be renegotiated, but it remains unclear how much time that will take, adding to market uncertainties.
Vanguard has $10.4 trillion in assets under management. Vanguard could not be immediately reached for further details.
