Investors have been closely monitoring the shifting landscape of U.S. trade policy under President Trump. Recall that President Trump announced an initial wave of “reciprocal tariffs” last April to counter what he feels are unfair trading practices deployed by America’s trading counterparts over the course of the past several decades that have caused growing trade deficits for our country. His stated goal is reducing America’s chronic trade deficits by boosting American exports and substituting imports with domestically manufactured products and services.
Source – BEA, Statista
US Trade Balance
The US trade balance has been in deficit since the early 1970s, but the deficit has been growing sharply since the start of the millennium.
What Is a Trade Deficit?
A trade deficit is, quite simply, the total value of a country’s imports of goods and services minus the total value of its exports of goods and services. When a country exports more than it imports, it has a trade surplus, and when it imports more than it exports, it has a trade deficit. A trade deficit can mean one of two things: Either the country is failing to produce enough goods for its citizens, or its citizens are wealthy enough to purchase more goods than the country produces, as is the case with the United States.
Why Do Trade Deficits Matter?
Ultimately, trade deficits must be financed by capital inflows, which means foreign countries recycling their surplus dollars into private US assets and/or US government bonds. If there is confidence in the performance of US assets, deficits can be easily financed. The Administration’s concern has less to do with financing the deficit; our view is that the Administration feels that This view is predicated on the axiom that since deficit countries consume more than what they produce, a part of domestic consumer demand is met by foreign businesses and workers. The larger the deficit, the larger the component of foreign suppliers/labor to meet domestic consumption.
Current Developments
After announcing the tariff policy last April on “Liberation Day,” April 2, the Trump Administration initiated a 90-day window before actual implementation to give America’s trading partners the opportunity to negotiate bilateral trade deals. During the negotiation period, the Administration did however charge a base line 10% tariff on all trading partners with the understanding that final country specific tariffs would be dependent on the outcome of bilateral negotiations. Many large trading partners have now negotiated the contours of their tariff arrangements with the Trump Administration. Below is a truncated table on updated country-specific tariffs pertinent to America’s more important trading partners as of July 31, 2025. Importantly, negotiations are still underway with Canada, Mexico, and China, America’s three largest single country trading partners.
Updated Reciprocal Tariffs by Country
| Countries and Territories | Reciprocal Tariff, Adjusted |
|---|---|
| European Union | 15% |
| United Kingdom | 10% |
| Japan | 15% |
| South Korea | 15% |
| Taiwan | 20% |
| Vietnam | 20% |
| India | 25% (raised to 50% 8/6/2025) |
| Switzerland | 39% |
| Brazil | 10% |
| South Africa | 30% |
| Indonesia | 19% |
Source – The White House. As of July 31, 2025
Implications & Takeaways
- Earlier this summer, we mentioned in an investment letter that we feel Various research organizations have attempted to quantify the impact based on tariff rates articulated by the Administration as of July 31, 2025, as well as expectations on the outcome of negotiations with major partners still negotiating trade deals including Canada, Mexico, and China.
- According to the Tax Foundation, the estimated impact on full annual GDP growth is estimated at 0.8%. Over 10 years, tariff revenues are expected to generate $2.1 trillion to the government’s coffers.
- Under all the imposed tariffs, the weighted average applied tariff rate on all imports would rise to 21.1%. The average effective tariff rate, reflecting how much tariff revenue the new tariffs would raise after incorporating behavioral responses, would rise to 11.4% under the current tariffs—the highest average rate since 1943.
Portfolio Recommendations
While tariffs create winners and losers with disparate impact on different industries and sectors of the US economy, slower secular growth will most likely have a negative impact on corporate profits. This alone should not alter our clients’ overall asset allocations if the allocations are based on analytical assessments of the asset growth required to fund future liabilities, and the portfolio drawdowns levels our clients are willing to absorb without having to sell assets.
Rebalancing Considerations
However, due to the extraordinarily low interest rates between 2009 and 2022, there may be investors who are still excessively allocated to equities. We would recommend clients who have minimal allocations to debt assets to review their portfolios with our Portfolio Management Group.
Diversification Through Private Markets
Where applicable, investors should also look for further diversification through building allocations in private markets, with infrastructure and real estate representing opportunities for greater portfolio stability.
