This past Wednesday, the U.S. unveiled a new policy framework based on “reciprocal tariffs.” These new measures are generating fresh uncertainty for global commerce and significant volatility for the financial markets. We want to offer our perspective on the current situation and our clients’ portfolios.
What Happened?
For most of this year, investors, including Sage, have been alert for potential shifts in U.S. trade policy. That uncertainty intensified in recent weeks as the U.S. announced a series of tariffs targeting Mexico, Canada, and China and then updated, delayed, and modified them. This week’s latest policy announcement included:
- A universal tariff of 10% on most goods imported into the U.S., effective April 5th.
- Significantly higher tariff rates on imports from countries with which the U.S. has large trade deficits—most notably, 54% on Chinese goods and 20% on goods from the European Union, beginning April 9th.
- Exemptions for goods from Canada and Mexico covered under the USMCA trade deal (products wholly grown or originated in Mexico/Canada, such as avocado or lumber), as well as for pharmaceutical products, oil, and semiconductors.
As a result, the average U.S. tariff rate is expected to rise sharply—from about 2% before the announcement to 20%, a mark that hasn’t been seen since the 1930s.
The most unexpected feature of this new trade policy is its structure: tariff rates are now explicitly tied to the size of the U.S. trade deficit with each country. Examples of this are China and the European Union, which will see tariff levels of 54% and 20%, respectively. This structure introduces a new layer of complexity for global commerce and makes trade relations more politically sensitive.
Immediate Impact on the Global Economy and Investment Markets
In the near term, we expect the new tariffs to slow U.S. economic growth and temporarily raise consumer prices. But it is also worth noting:
- Tariffs are one-time price shocks, and we do not expect them to be an ongoing source of inflation.
- The global economy entered 2025 on solid footing, with healthy corporate balance sheets, manageable household debt levels, and a robust labor market.
- Bilateral negotiations could ease trade tensions in the coming months.
- If growth slows, fiscal stimulus and additional Fed rate cuts are likely to be considered—potentially offsetting some of the economic drag from tariffs.
Markets have pulled back this year with significant volatility this past week after the tariff announcements.
- U.S. large-cap stocks have declined 9.1% this past week and are down 13.6% year-to-date,
- U.S. small-cap stocks have declined by 9.6% this week and 17.8% in 2025.
In uncertain environments like the current one, diversification plays an especially important role. While equities have weakened, other asset classes have provided stability and even gains:
- The Bloomberg Global Aggregate Bond Index, which includes U.S. and international bonds, has returned more than 4.2% in 2025.
- Infrastructure investments, which can serve as a hedge against inflation, have also contributed meaningfully to portfolio performance, returning 4.4% in 2025.
Closing Thoughts
We understand that market volatility and uncertainties like the ones we are experiencing now can be unnerving. Our clients’ portfolios are well diversified and have been carefully constructed based on their risk profile, time horizon, and return goals, with assumptions that include a wide range of potential scenarios, including extreme shocks.
Previous Posts
- Sage Insights: The First Quarter Comes to an End
- Sage Insights: Market Observations for February
- Sage Insights: Navigating Markets in the New Year
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Disclosures
The information and statistics contained in this report have been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks, or estimates in this letter are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks, or assumptions should not be construed to be indicative of the actual events that will occur. These projections, market outlooks, or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product, or any non-investment-related content referred to directly or indirectly in this newsletter will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer reflect current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses. Actual client portfolio returns may vary due to the timing of portfolio inception and/or client-imposed restrictions or guidelines. Actual client portfolio returns would be reduced by any applicable investment advisory fees and other expenses incurred in managing an advisory account. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Sage Financial Group. To the extent that a reader has any questions regarding the applicability above to his/her situation or any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. Sage Financial Group is neither a law firm nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Sage Financial Group’s written disclosure statement discussing our advisory services and fees is available for review upon request.
