{"id":27880,"date":"2025-04-14T12:49:28","date_gmt":"2025-04-14T16:49:28","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-ca\/?p=27880"},"modified":"2025-04-14T12:49:30","modified_gmt":"2025-04-14T16:49:30","slug":"tariff-pause-reasons-to-exhale-and-get-back-to-basics","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-ca\/insights\/tariff-pause-reasons-to-exhale-and-get-back-to-basics","title":{"rendered":"Tariff pause: Reasons to exhale and get back to basics"},"content":{"rendered":"\n

\n After almost reaching bear market territory with the S&P 500 down 19.5\n percent from its all-time high during midday trading on Wednesday, the\n U.S. market abruptly reversed course and rallied on news that U.S.\n President Donald Trump paused the Rose Garden reciprocal tariffs on many\n trading partners for 90 days.\n <\/p>\n

\n The S&P 500 ended Wednesday\u2019s session up 9.5 percent, the biggest\n single-session rally since October 2008.\n <\/p>\n \n

Reversal rationale?<\/h2>\n

\n Was the tariff pause a deliberate, well-timed maneuver by Trump after more\n than 70 countries had reached out to negotiate, a development that was\n part of his broader tariff strategy, as his team stated?\n <\/p>\n

\n Or was it due to mounting pressures from Republican congressional members,\n corporate leaders, and small business owners, along with the stock market\n sell-off and stress in the bond market, as was cited by business\n publications including Bloomberg?\n <\/p>\n

\n We lean toward the latter, and Trump even acknowledged some of those\n factors, but you can draw your own conclusions.\n <\/p>\n

\n Another factor may have been to offset the escalation with China on\n tariffs and other fronts. Comments by Treasury Secretary Scott Bessent\n indicate the administration is attempting to convince some countries to\n take the American side of the U.S.-China trade dispute. Given China\u2019s\n dominance in international trade and strengths in other areas, we don\u2019t\n think most countries will oblige; they\u2019d probably rather stand on the\n sidelines.\n <\/p>\n \n

Much still hangs in the air<\/h2>\n

\n Regardless of the motives, we think the 90-day pause on some tariffs is\n an indication that at least some of the Rose Garden tariffs probably\n won\u2019t be implemented at all.\n <\/strong>\n <\/p>\n

\n It may also mean that the \u201cbig tariffs on everyone\u201d approach\u2014which\n Republican Senator Thom Tillis dubbed as the \u201calla prima\u201d approach in a\n very critical assessment during a Senate hearing\u2014has been shelved by the\n Trump team.\n <\/p>\n

\n Therefore, the so-called \u201cend game\u201d of this saga\u2014which we think is still\n some ways away\u2014could wind up with a U.S. average effective tariff rate\n below the 24 percent level that RBC Economics had pegged after the big\n Rose Garden reciprocal tariffs were announced.\n <\/p>\n

\n Even if Trump does refrain from imposing large tariffs on many trading\n partners, we think the genie is out of the bottle.<\/strong\n >\n The U.S. average effective tariff rate could wind up much higher than the\n 2.4 percent level in 2024, in our view.\n <\/p>\n

\n It\u2019s possible Trump will stick with a 10 percent across-the-board tariff\n on goods from most countries and high tariffs on Chinese goods (although\n not nearly as high as he\u2019s threatening now)\u2014this is what he campaigned on.\n And we think he could stick with high tariffs on industries he views as\n being strategically important like automotive, steel, and aluminum, and he\n could end up adding high tariffs on other industries.\n <\/p>\n

\n This is because protectionist practices didn\u2019t just begin with Trump\n 2.0.<\/strong\n >\n We think their roots go all the way back to the global financial crisis in\n 2008\u201309 and, more importantly, are intertwined with geoeconomic,\n geopolitical, and geostrategic changes that have taken place over many\n years, as we detailed in this\n report<\/a\n >\n in May 2023.\n <\/p>\n

\n In the near term, considerable economic uncertainties remain for the\n U.S., its major trading partners, and the global economy in general.\n <\/strong>\n <\/p>\n

\n The 90-day pause leaves a lot of issues about tariff policy hanging in the\n air. U.S. businesses of all sizes are still faced with supply chain\n uncertainties and are left questioning their capital allocation decisions\n and customers\u2019 end demand. Trump\u2019s escalation with China poses separate\n challenges for the U.S. economy, in our view. And inflation, stagflation,\n and recession risks linger.\n <\/p>\n

\n In early March, as tariff headwinds began to blow and Q1 economic data\n weakened, RBC Economics lowered its full-year 2025 U.S. GDP growth\n forecast to 1.6 percent from 2.0 percent. Today it lowered the estimate\n further to 1.0 percent. While it\u2019s not currently forecasting a recession,\n RBC Economics noted that \u201cU.S. growth still risks contracting should\n uncertainty or financial instability put additional downward pressure on\n the economy.\u201d The team also expects U.S. core consumer inflation (excludes\n food and energy) to spike to 4.3 percent by Q3 of this year from 2.8\n percent in March due to tariff-related price pressures. For additional\n information about the updated U.S. and Canadian forecasts, see this\n article <\/rbc-icon><\/a\n >.\n <\/p>\n \n

Test of resolve<\/h2>\n

\n For individual investors, we think the details associated with the\n tariff saga are less important than your overall investment\n strategy.<\/strong\n >\n <\/p>\n

\n From our vantage point, the most important takeaway for long-term\n investors is that this ultrahigh volatility episode in the U.S. stock\n market is yet another illustration that when equity markets decline\n rapidly, they can change course abruptly. And quite often, the best\n approach for long-term investors is to ride out the extreme volatility.\n <\/p>\n

\n As we pointed out\n recently<\/a\n >, there have been many instances of deep drawdowns in the S&P 500 in\n any given year, yet the annual return and the market\u2019s path over the\n medium and long term frequently turned out differently.\n <\/p>\n

\n Wednesday\u2019s sharp rebound gives investors the opportunity to exhale and\n get back to the very basics of investing\u2014especially if the downturn\n rattled your nerves.<\/strong\n >\n <\/p>\n

\n This is a good time to consider the following:<\/strong>\n <\/p>\n