Considering Tariffs (Perhaps For The First Time)
Giving credit where credit is due, President Donald Trump must be thanked for teaching us all the meaning of the word “tariffs” and about the impact they have on U.S. trade with global partners.
It is possible that investors have gone their entire lives without thinking about the penalty placed upon goods which enter the United States from other countries, as well as the penalty American companies pay when their goods are shipped overseas. But that is no longer the case, as President Trump has created a firestorm of debate and argument and little negotiation around the topic of the tariffs paid by U.S. companies and the tariffs charged foreign companies to bring their products to the U.S.
President Trump says his negotiating style will provide “winning" for U.S. companies eventually, but the immediate impact is a confused and uncertain U.S. stock market, changing prices on consumer goods in the United States and companies whose goods and services are suddenly not moving at the pace they once were. Some companies, like Harley-Davidson, are considering moving production outside of the United States in order to combat the effects of the new tariff standards.
While investors certainly are hearing the word “tariff’’ more than in the past, are they considering the tariff laws in their investment decisions?
Spectrem asked that question in its monthly survey of investors with a net worth up to $25 million (not including primary residence) in July and found that while more investors are indeed paying attention to tariffs, not all of them are letting tariff talk affect investment decisions.
Only 38 percent of all investors said the tariff negotiations would have an effect on the way they invest in in the future. However, 43 percent of Senior Corporate Executives say they will make different decisions because of the tariff conversations.
For most investors, the impact of higher tariffs on imports and exports do not affect their own companies directly, but they do impact portfolios. An investor may be invested directly in a company that is paying more for foreign goods or making less for selling their goods elsewhere, but it is possible that stock mutual funds can also see consequences which will cause investors to take note.
Sixty-five percent of investors said they would be paying more attention to how tariffs impact publicly traded U.S. companies. That shows a direct line between tariff negotiations and the investment decisions of investors, who are more likely to act upon the news of the day when they are paying attention to the topic. Professionals, those investors who are doctors and lawyers, are the most interested in the topic, with 78 percent saying they will be paying close attention to the topic and its influence on stock prices.
It makes sense as well that the wealthier the investor, the more likely they are to be paying close attention to the topic. Almost three quarters of investors with a net worth above $5 million say they are now avid readers and listeners when the topic of tariffs and their impact on U.S. companies comes up.
Top Takeaways for Advisors
Advisors are obviously very attuned to the tariff conversations because of its almost immediate impact on U.S. companies, including some that are the most popular firms in the country. The impact of tariffs needs to be discussed with investors, and there are some investors for whom the topic is top-of-mind these days.
But advisors need also address the possibility that tariffs are not permanent. Already there have been dramatic shifts in the U.S. policy toward other countries based on how they have reacted to initial U.S. policy shifts, and The Trump administration is very reactive to outside influencing forces. Advisors can provide direction toward a steady approach to handling the matter of tariffs since the full effect and the long-term relationships are unknown at this time.
©2018 Spectrem Group