In light of the extreme volatility and market reaction that the markets have displayed in response to the Trump Administration’s new tariff regime, we want to emphasize that the market appears to be shooting first and asking questions later. While the magnitude of the tariffs was higher than expected, which resulted in a very violent and negative reaction in markets, we emphasize that there is much more to this story than just simply tariffs—as we referenced in our blog post on March 11. We believe the market is yet again missing the forest for the trees.
Historically, we have not been proponents of the use of tariffs to the extent that they represent protectionism that can harm free enterprise. However, we recognize that for decades, the United States’ trading partners have not been as favorable to free trade as we would have liked, and that even the United States has engaged in protective trade behavior in the era of globalization. Clearly, the Trump Administration is trying to use these tariffs in order to level the trading playing field. Trump views U.S. relationships with its trading partners holistically—considering everything from non-tariff trade barriers to defense relationships to U.S. aid—and he is hoping these partners will come to the table to negotiate better terms for the United States. We believe that if this strategy is successful, it could ultimately lead to a more effective trade system that benefits both the U.S. and global markets.
Putting aside the tariff issue for a moment, Washington is also taking other actions that are clearly positive for the economy, yet the market does not seem to want to take these into account. These measures include significant progress on regulatory relief for businesses, reductions in government spending, and the pending legislation in Congress to make existing tax rates permanent and offer further tax relief. Lower regulation and taxes are the keys to unleashing free enterprise in the United States.
The twin pillars of free trade and free enterprise are the necessary ingredients of a strong U.S. and world economy. Many of the more libertarian commentators who are shrieking about the Trump tariffs are failing to see how these measures could actually lead to a freer trade system on both sides of the equation. The market is understandably distracted by all this negative news and is thus ignoring the positive economic developments underway.
Unfortunately, we are experiencing yet another period of market overreaction, where the bears are having their day. However, our message is that we are bullish on business in America. Now is the time to be centered and still amidst the storm and hold fast to what we know to be true: that owning well-managed companies through these mad market cycles is the best way to invest in our future. And to the extent possible, this is an excellent time to diligently add to portfolios, or begin if one has not done so already!
