Trade Wars & Your Portfolio: How Tariffs Impact You

Hello, and welcome to this month’s market update for April 2025. My name is Steve Latham. I am the Chief Investment Officer for Bernicke Wealth Management. And while there’s been a lot going on in the market these last couple of weeks, just to let you know where we’re at today, as of this recording, it is Thursday, April 10th, and we have just rallied 9% after falling around 15% on the S&P 500 today.

Current Market Conditions

This Thursday, we are down about 3% on the S&P as of the time of this recording. So, like I said, there’s no shortage of things to talk about as it relates to trade, tariffs, the economy, and inflation. Really, pick your poison—we could do an entire video on that. But what I want to focus on this month is how trade works between the United States and our international trading partners, just to set up some definitions so that, as we hear about what’s going on in the news and the day-to-day media, we have an idea of these terms that are being talked about. And we all are on the same page as far as where the United States sits in terms of trade with our international partners.

Defining Trade Concepts: Deficit vs. Surplus

So let’s define a couple of the terms that we’ve heard commonly used over the last couple of weeks to describe America’s trade status with our international partners.

First, let’s look at what a trade deficit means. All that means is, if we are importing more from an international partner than we are exporting to them, then we are in a trade deficit. We are buying more of their goods than they are buying of our goods.

The opposite would be true with a trade surplus. That means we are exporting more to the country that we are trading with than we are buying from them.

US Trade on a Global Scale: Deficits and Surpluses

And on balance, if you look at this on a global scale, you can see through this chart that we import quite a bit more than we export.

Overall, every country that has a blue tinge to it is a country with which we have a trade deficit, meaning that we are buying more of their goods than they are buying of our goods. And when you look at this in total, our trade deficit with our global trading partners is around $900 billion.

Now, if you break that down further, we can see that our goods trade deficit is actually $1.2 trillion, meaning that we buy a lot more goods produced internationally than we sell internationally. However, we have a surplus in services, meaning that other countries buy more of our services than we purchase from overseas.

Trade Deficits by Country: Focus on China, Mexico, and Vietnam

And so when we look at this on a country-by-country basis, this is where you can see why some countries are called out more than others.

China is right up at the top with a trade deficit with the United States of $263 billion as of 2024. Now, all that means is we are buying $263 billion more of their goods and services than they are buying from us. You can go down the list for other countries where we also have a significant trade deficit, with Mexico and Vietnam being next on the list in terms of who we are buying more from than we are selling to.

Are Trade Deficits Bad? Specialization and US Strengths

Now, deficits are not necessarily a bad thing. Over the last 20 to 30 years, the world has really engaged in specialization in terms of who is producing what. Some countries have been able to get goods manufactured down to a level where it’s far cheaper for them to produce the goods and have them imported to other countries, while other countries, like the United States, have done a much better job of producing services like financial services and other trade-related services.

Historical Perspective: US Trade Balance

What we want to do is show where we’ve come from over the last 30 or really 40 years and where we’re at today.

In the 1980s, we actually had a relatively balanced trade surplus and deficit. So we were balanced across the board. Ever since then, as other countries specialized in certain areas and emerging markets focused on their export needs to grow their economies, we started seeing the United States buying more from other countries because our companies, based in the United States, have been leveraging cheaper manufacturing costs overseas.

Over the years, the numbers have fluctuated a bit, but if you look at the trend, it has consistently moved toward a trade deficit. We are now at the largest trade deficit we’ve seen in the last 45 years. Again, a lot of that comes from the goods side, because we are shipping out more services than we are pulling in, which ties back to the specialization of other countries.

Uneven Playing Field: Tariffs and Trade-Weighted Tariffs

A lot of the reason we are talking about this right now is because specialization, and perhaps more government intermingling with individual companies, has created an uneven playing field. One way to look at this is how other countries impose tariffs on U.S. goods versus how we have been tariffing their goods.

JPMorgan has created a really nice chart that shows the average trade-weighted tariff for what countries are charging us versus what the United States is charging other countries. If you look at the chart here in front of you, on the left side, we have the rate of tariffs charged by the United States to other countries. On the bottom, we have the rate of tariffs charged to the United States by other countries.

Most countries impose larger tariffs on the United States than the United States does on them. Now, if you look at the percentages, the tariffs aren’t terribly large on a trade-weighted basis.

The Intent of Tariffs: Leveling the Playing Field

So the intent of tariffs right now, at least from the United States’ perspective, is to try to even the playing field—moving some of these countries up and to the left so that the line of reciprocity, which is shown in this chart, is more centered for what we are doing with our largest trade partners.

Long-Term Outlook and Market Volatility

Now, the biggest thing to keep in mind whenever we’re seeing these headlines and trade-related noise coming through is that we need to take a long-term outlook at what is happening.

For better or for worse, what we’re experiencing right now is volatility, and that is normal in a market. We’ve often seen a correction of 10% or more in the stock market on average every one to two years, so it’s not uncommon for these things to happen. Corrections of 20% in the stock market have happened seven times over the last 30 years.

These aren’t uncommon phenomena, and we need to recognize that as these pieces of news come across the desk and the market reacts. For all intents and purposes, this is temporary. Now, we can agree or disagree with how these policies are being implemented and how trade is evolving on a global scale, but for the time being, as investors, when looking at our portfolios, we don’t want to make rash decisions based on day-to-day market moves.

Especially in a week as volatile as this one, where we’ve had a down day of 3%, an up day of 9%, and now another down day of 3%, jumping in and out of the market can cause you to miss out on these larger moves—especially once calm returns to the broader markets.

Closing Remarks

If you have any questions about what’s happening with tariffs or global trade, please don’t hesitate to reach out. We’d always be happy to answer your questions. Take care, and thank you very much.