The chief economic fears surrounding President Trump are tariffs, which he trumpeted loudly on the campaign trail. On February 1, he acted on campaign promises by announcing tariffs on imports from Mexico, Canada, and China. Whether or not these will be implemented in a consequential way remains to be seen, as he announced an agreement to delay the implementation of tariffs for Mexico and Canada two days later, on February 3, in exchange for additional border security.
In America, tariffs draw mixed reactions. Some view them positively, arguing they will protect industry and jobs and perhaps even restore perceived “lost” activity to international competition. Others fear they are inflationary, or risk lost trade and retaliation from partners. Outside America, though, they are nearly universally cast as unfavorable, and many economic pundits argue tepid economic growth can’t take another shock. But Trump’s imposed tariffs look like a false fear; remember, fear of a false factor is always bullish.
In 2016, President Trump threatened China, Mexico, Canada, and the EU with tariffs in the run-up to and during his first term. He also exited Trans-Pacific Partnership (TPP) talks, enacted tariffs on select imported metals, and threatened to leave the North American Free-Trade Agreement (NAFTA), restoring tariffs on Canadian and Mexican goods. Many in the media said the tariffs would sink markets and extinguish economic growth. But reality proved differently.
When President Trump took office in 2017, most tariff talks proved to be a negotiating ploy. Leaving TPP talks didn’t change the existing trade landscape, considering it wasn’t ever signed or ratified. Regarding NAFTA threats, the endgame was the US-Canada-Mexico Agreement, which arguably slightly deepened trade, added more enforcement mechanisms, and required a review in 2026 (President Trump now says he wants a 2025 review).
China even inked deals to avoid and mitigate the scope of tariffs during President Trump’s first term. Yet again, tariff threats were primarily negotiating tools—protectionism as economic policy wasn’t the endgame—it was new deals. However, some levies did become a reality, and former President Joe Biden added a few more. Yet, the macroeconomic effects were so minor that it was hard to find them written about in the media.
Back to the present day, there are already signs tariffs may again not materialize as much as feared. In early January, reports said the universal tariffs would exempt many US imports (President Trump rejected this as fake news). Later, administration officials floated the idea that tariffs might be implemented gradually. Nevertheless, as mentioned above, President Trump took the first actionable step in February toward making some of these new tariffs a reality. Yet, if we look at the tariffs threatened on Canada and Mexico, they are already tied to a tangible outcome: Tightening border policy and reducing fentanyl flows.
Even if tariffs arrive, scaling them is critical because fear over their effects likely exceeds reality—The majority of the GDP in America, Canada, and developed nations is spent on services. This doesn’t mean tariffs wouldn’t hit the service sector, but myriad ways exist to mitigate their impact.
First, if tariffs aren’t universal and all-encompassing at the country level, a business can change suppliers. They can adjust goods’ construction or use different suppliers to obtain goods needed to deliver services. Furthermore, they can negotiate with governments or suppliers to ease the effects. They can anticipate tariffs’ implementation and stockpile inventory. That may not be the most immediately efficient use of funds, but anticipation is mitigation.
Lastly, remember that companies employed transshipping during President Trump’s first term. When the administration slapped tariffs on China, US imports from China fell. However, trade with the US boomed elsewhere in Asia (Malaysia, Thailand, and Vietnam). Maybe some of this was caused by Chinese firms investing in factories and shipping directly from them to America. Nonetheless, in many cases, Chinese exports probably had a layover in other parts of Asia to evade tariffs.
Yes, it would be harder for firms to dodge a universal tariff. However, businesses still have the means mentioned above to mitigate the effects. Consumers can also make choices and substitutions if companies try to pass costs on. Substitutions are not always preferable, but they often provide cost relief.
In closing, remember, politicians aren’t known for their intellectual consistency. They make many promises, some of which may help, and others may hurt. While attention-grabbing, today’s conditions aren’t perfect, but from a capital market perspective, dampened political enthusiasm lowers the bar that reality must exceed to beat expectations. All of this, coupled with continued spotty, yet decent economic data, has me bullish for 2025.
