For those who caught my recent podcast episode on risk, I'm excited to share that our annual ski trip was a success, and nobody got hurt. 🙏

In fact, this year was extra special because my wife and I got to share a chairlift with our boys for the first time :)

In today's email:

• What is a Tariff (and Who Pays It)?
• What Are the Potential Financial Repercussions of Tariffs?
• How Should Investors Think About Tariffs?

I'm also sharing three of my favorite articles I read this past week.

Let's dive in!

Tariffs: A Buying Opportunity?

As always, I strive to remain completely apolitical in this newsletter.

My goal in writing on this topic today is simple:

To help retirement savers better understand tariffs and their potential impact, clear up some misconceptions, and discuss how we might respond as long-term investors.

Let’s start with what has transpired over the last couple of weeks.

What Happened?

Days after taking office, Trump announced tariffs of 25% on imports from Canada and Mexico, and 10% on imports from China.

Given that 43% of US imports come from these three countries, these are significant tariffs.

However, within hours of the initial announcement, the tariffs on Mexico and Canada were suspended for a month, supposedly due to the swift response of those two countries.

Tariff specifics are changing by the day, so there are many possible ways this may play out.

In fact, today, Trump confirmed the proposed tariffs on Mexican and Canadian goods will go into effect on March 4th.

What is a Tariff (and Who Pays It?)

At its core, a tariff is simply a tax on imported goods, ranging from raw materials to luxury finished products and everything in between.

Perhaps the biggest misconception is regarding who pays this tax.

Contrary to what many people believe, the foreign country does not pay the tax.

It is the importer who pays the tax, which means American corporations bear the burden of the tariffs, at least initially.

(More on this in a moment.)

Even if a foreign country isn’t directly responsible for the tax, it doesn’t mean they are indifferent to tariffs.

In fact, the rising costs of imports can reduce consumer demand for their products.

Additionally, prolonged tariffs could encourage manufacturers to relocate their operations to other non-tariffed countries.

While it’s clear that tariffs impact foreign countries, they are an indirect path to addressing certain issues.

What Are the Potential Financial Repercussions of Tariffs?

To be very clear, the global economy is incredibly complex, so it’d be foolish to think that anyone knows what impact these tariffs will ultimately have.

That said, from an economic perspective, we can draw some basic conclusions about the potential effects of tariffs on businesses and the economy if they remain in place.

As mentioned, the proposed tariffs are a tax paid by U.S. corporations.

This being the case, corporations have just two options to choose from to deal with these additional costs:

1. Companies can absorb these taxes, which would probably reduce earnings (bad for investors).
2. Or, companies could pass this tax along to consumers in the form of higher prices (bad for consumers).

Obviously, neither scenario is particularly great.

That’s not to say that tariffs serve no positive purpose if used as an effective negotiation tool, but experts seem to agree that there are rarely any winners in a prolonged trade war.

How Should We Think About Tariffs as Long-Term Investors?

The biggest impact for investors is likely to be increased uncertainty and volatility.

While Trump has indicated that he is okay with some pain, he’s been pretty clear through the years that he considers the stock market's performance to be one way he measures the success of his policies.

Keeping this in mind, he could walk these policies back if there is “too much” pain for his liking.

Though, only Trump knows where that line is.

Looking at the long-term perspective, I’d argue that tariffs will likely be remembered like every past alarming headline, as everyone will have forgotten about them in just a few years.

In other words, I won’t pretend to know what the future holds.

But history has shown that every past instance of volatility—regardless of the catalyst—can be rightly viewed as an opportunity to buy more shares of the world’s great companies at temporarily lower prices.

Here's What I've Been Reading This Week:

• ​Let's Talk About Tariffs​
• ​When Are Tariffs Good?​
• ​What New Skill Are You Learning Right Now?​

Hit reply to this email with any questions, comments, or feedback.

I personally respond to every message.

Stay wealthy,

Taylor Schulte, CFP®