📦 Made In America (with tariffs)

Washington has passed a law imposing high tariffs on more than 20,000 imported products. The official goal: to protect national industry and preserve American jobs. But the immediate effect has been different: trade retaliation, a decline in international trade, and an increase in global economic tensions. In the name of protectionism, the fuse for a new trade war has been lit.

Although it seems current, this happened in 1930 with the Smoot-Hawley Tariff Act. Instead of protecting the economy, the measure reduced exports, contracted global trade, and worsened the crisis it was trying to correct. Today it is considered a major mistake that amplified the Great Depression in the United States in the last century.

However, the current context is different: there is more global integration, central banks have greater freedom, and more advanced economic tools exist. Even so, history reminds us that trade wars can have adverse effects.

⚖️ When you spend more than you earn

The United States has maintained a persistent fiscal deficit for decades, driven mainly by a constant increase in public spending. In other words, its federal tax revenue fails to cover government spending on health, defense, interest, social security, etc.

US budget deficit tops $1.8 trillion in fiscal 2024, third-largest on record | Reuters

To cover this difference between what is collected and what is spent, the government resorts to debt issuance. But this is only sustainable to a certain extent and also comes hand in hand with future interest payments. In just eight presidencies, the United States’ debt has skyrocketed to historic levels: it has multiplied by eight, exceeding 35 trillion dollars. This figure is not only an absolute record, but it also exceeds the country’s Gross Domestic Product, which is around 30 trillion. In other words, the United States owes more than what its entire economy produces in a single year, a warning sign that puts the fiscal sustainability of the world’s largest economy in check.

U.S. National Debt by President – Personal Finance Club

Faced with this situation, there are two possible paths to try to balance the books:

🔹 Reduce public spending, a measure as necessary as it is politically explosive. It would imply cutting funds to government agencies, health, education, and social assistance programs, on which millions of Americans depend daily. Touching that spending means meddling with the pillars of the country’s social contract.

In an unconventional twist, earlier this year Elon Musk was appointed, CEO of Tesla and SpaceX, to identify redundancies and eliminate unnecessary spending within the state apparatus. His mission: to apply business logic to the heart of U.S. public spending.

🔹 Increasing revenue, generally via taxes. In this area, there are also tariffs, which, although they may sound technical, are nothing more than hidden taxes. The result? The average consumer ends up footing the bill, with more expensive products and lower purchasing power.

🎯 Tariffs as a political tool and a demand for reciprocity

The trade war 2.0 being waged this year revives the “America First” rhetoric that Trump used in his first term, but with new intensity. According to the White House narrative, other countries have charged higher tariffs on U.S. exports than Washington imposes on foreign goods.

Average tariffs of the world’s major economies, 2023

This has served as justification for establishing “reciprocal” tariffs with the intention of leveling the playing field. However, each increase has been met with a response from trading partners, creating an action-reaction dynamic.

tradingeconomic.com

🚨 New measures in 2025

Following the latest announcement on the imposition of tariffs, we have the following information:

• 25% on products from Mexico and Canada (excluding Canadian energy: 10%)

• 20% on all imports from China

• 25% global tariff on steel and aluminum

• 25% on foreign automobiles

• 10% global on all imports (as of April 5)

• As of April 9, “reciprocal” tariffs from 11% to 50% to 57 countries

Countries with higher protections, especially in Asia, have been the most affected. In contrast, allies like the UK or Brazil remain at the base level of 10%. Most Latin American countries share that same rate.

Reciprocal Tariffs Announced | Trade Lawyers - Barnes Richardson Colburn

White House 04/03/2025

💸 Inflationary blow or prolonged effect?

One of the risks of these tariffs is the increase in the prices of imported goods. The Federal Reserve has indicated that, if there are no new rounds, the impact would be a “one-time hit” on prices. That is, an initial adjustment that would not necessarily translate into prolonged inflation.

However, if more tariffs are implemented in a few months, these increases can accumulate and affect purchasing power.

🌎 Tariffs as a mechanism for international pressure

In January, amid a migration dispute, the White House announced a 25% tariff on all imports from Colombia, with a threat to raise it to 50%. After negotiations, the measure was suspended. Despite its brevity, the episode shows how tariffs have become a tool of pressure beyond the commercial realm.

In March, there was a threat of a 25% tariff on goods exported by countries that purchase Venezuelan oil. The intention is to dissuade partners from doing business with the government of Venezuela, by conditioning access to the US market.

📉 Effects on growth and markets

According to the IMF, these policies could reduce U.S. GDP growth by between 0.5% and 1.5% over the next two years. Although the economy remained stable, uncertainty and volatility are increasing, which affects investment decisions.

Europe is also being affected. Industries such as automotive, steel, and aluminum—important in Germany, Italy, and Spain—depend on access to the U.S. market. New tariffs weaken their competitiveness and could slow down the continent’s economic recovery.

Financial markets have reacted with declines and volatility to every announcement of tariffs or retaliations.

🔍 Myths and realities

Protection or political tactic?

Although Trump defends tariffs as a way to strengthen industry, evidence shows that their benefits are usually temporary. For many analysts, the measure is more politically than economically motivated. While it is legitimate to aspire to a fairer trade relationship for the United States, there is a risk that if these measures are prolonged, they will end up pushing the country toward a recession.

Job creation?

In our opinion, it is not strategic for the United States to try to recover industries that depend on low-cost labor, especially in a context of low unemployment. Instead, it makes more sense to focus efforts on sectors that require qualified or specialized personnel, such as semiconductors, where the country can maintain a real competitive advantage.

Consumer impact?

Tariffs act as an additional tax that raises the price of basic goods, automobiles, and manufactured products, which, from the perspective of financial markets, adds an unfavorable layer of uncertainty. Although their advocates argue that the inflationary impact would be a “one-time hit,” that initial price increase not only reduces purchasing power but also complicates consumption and growth projections. In an environment where markets value stability and predictability, these measures introduce doubts about the evolution of demand, investment decisions, and monetary policy, which can translate into greater volatility.

🔮 Outlook: navigating choppy waters

Between March and so far in April, stock market indices such as the S&P 500 and the Nasdaq have fallen by more than 15%, largely due to the new tariff environment. Caution is increasing, and global growth projections are decreasing.

Although there is no talk of a crisis yet, there are clear signs of a slowdown. The reactions of partners such as Europe, Mexico, Canada, and China may increase costs and reduce trade. In this scenario, markets are adopting a wait-and-see attitude, with an increasing risk of recession.

It remains to be seen whether these tariff threats will lead to favorable concessions for the U.S. or whether they will result in a prolonged conflict with negative effects for all. For now, the Federal Reserve believes that the inflationary impact could be limited, provided the dispute does not escalate.

📌 Conclusion

From Evolution Wealth Advisors, we consider that tariffs have returned as an active tool of commercial and political pressure. They will undoubtedly continue to be part of the U.S. negotiating repertoire in the coming years. We believe that the depth and scope of current tariffs respond as much to a short-term tactical strategy as to a rebalancing of the U.S. budget.

The big question remains open:

Will these tariffs serve to protect American industry or will they become an economic and political boomerang?

For now, the effects are already being felt in the markets. Our expectation is that the stock market will react quickly to any sign of improvement. A clear example occurred on the same day we wrote this article (April 7): the markets rose aggressively for a few minutes after positive news… which later turned out to be false. Even so, the initial reaction shows how sensitive investors are to any hint of good news. See image below.

What happens in the coming months will depend on how trading partners react… and on how far the U.S. is willing to go to maintain this strategy.

📩 Would you like to talk about how this environment might affect your portfolio? contact us

Article written by Michael Marciano and Santiago Lossada. Edited by Roberto Vainrub.

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