Trump’s Upcoming Tariff Plan: Impacts and Investor Strategies

Wednesday marks “Liberation Day,” as President Trump refers to April 2, the date when he intends to reveal his significant reciprocal tariff plan. Trump emphasizes the importance of this initiative, stating:

This is the beginning of Liberation Day in America. We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they’ve been taking over the years. They’ve taken so much out of our country, friend and foe. And, frankly, friend has been oftentimes much worse than foe.

A White House memo reveals that the new tariffs will be customized for each U.S. trading partner. Their purpose is to counteract tariffs imposed on U.S. goods and address issues like regulations, value-added taxes (VATs), and weak intellectual property protections that disadvantage American manufacturers.

Since the announcement, speculation has surged regarding the implications of these tariffs. Questions abound: Is Trump using tough rhetoric as a negotiating tactic? How severe could the tariffs be? Is he prepared to jeopardize the economy and the Stock market for his goals?

Our hypergrowth/technology expert, Luke Lango, editor of Innovation Investor, outlined three potential ways tariffs might be applied:

• Matching existing tariff rates of other countries to close the differential.
• Imposing new tariffs equivalent to the respective VAT rates.
• Targeting non-tariff barriers like sanitary standards and licensing with new tariffs.

What are the implications of each approach for the economy? Here’s Luke’s perspective:

The first option – matching tariff rates – seems very likely and won’t do a ton of damage. It will increase the average tariff rate by 1-2 points, barely affecting GDP growth and inflation.

The second option – addressing the VATs – is probable but would inflict more significant damage. It could raise the average tariff rate by over 10 points, potentially reducing GDP by almost 2 points and inflating prices by approximately 1 point.

The third option – pursuing non-tariff measures – seems unlikely, but would cause substantial harm. It might increase the average tariff rate by nearly 30 points, negatively impacting GDP by 4 points and inflation by 2-3 points.

In this worst-case scenario, the global economy could enter a recession.

However, if only options one and two take place, particularly on a temporary basis, the economy may avoid recession. This week and the subsequent weeks are therefore critical.

Why the Tariff Situation May Resolve Quickly

Luke asserts that the White House is prepared to adopt a hardline stance in this global trade conflict. Although Trump faces criticism and economic slowdown forecasts, he remains undeterred.

Despite the prevailing pessimism, Luke anticipates a swift resolution:

Despite all the intense and hostile rhetoric currently, I expect a rush to the negotiating table, leading to new trade deals in April.

Within the first two weeks of April, we expect many countries to arrive at agreements with the U.S. that would result in the repeal or delay of most tariffs.

If this occurs, the tariffs may not persist beyond a few weeks, and by late April, the situation could be significantly clearer.

Once the tariff issues settle, fears of a recession may subside, consumer confidence could recover, and economic activity may strengthen, leading to a stock market rebound.

Should Trump prove Luke incorrect and a major trade war ensue, investors would need to adopt a defensive strategy. However, for now, Luke favors a more optimistic outlook.

Investment Strategies for the Short-Term Tariff Challenges

If you follow Luke regularly, you’ll know his recommended action: buy leading AI and technology stocks that have experienced declines since mid-February.

Luke points to the Bloomberg Artificial Intelligence Aggregate Equal Weight Total Return Index, which he describes as “the best comprehensive measure of AI stocks in the market.” This index includes companies from smaller entities like Astera Labs (ALAB) and Celestica (CLS) to giants like Nvidia (NVDA) and Microsoft (MSFT).

He notes that last week, the index hit a significant low:

The AI Index is trading at its cheapest valuation since the AI boom started in late 2022 (21X forward earnings). It has dropped to its extreme technical support level (the 250-day moving average), which it has generally maintained throughout the AI boom.

Provided the economy avoids a recession, this situation presents an opportunity for savvy investors.