Tariffs, Trade Deficits and Consumer Confidence<\/strong><\/h2>\n\n\n\nFast-forward to today, and we\u2019re seeing some eerily similar trends, starting with an increase in Canadian pride. Due to some of President Donald Trump\u2019s antagonistic rhetoric, we saw Canadians boo the U.S. national anthem during the 4 Nation\u2019s Face-Off hockey game, and a recent poll shows that Canadian pride has jumped 10 points<\/a> since December 2024.<\/p>\n\n\n\n![\"Pride](\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\")
<\/figure>\n\n\n\nTrump has made tariffs a cornerstone of his economic strategy, arguing they will bring jobs back to the U.S. and reduce the trade deficit. But just like in McKinley\u2019s time, history suggests tariffs don\u2019t actually reduce trade deficits\u2014they often increase them. Why? Because tariffs discourage trade on both sides, leading to fewer exports and fewer imports.<\/p>\n\n\n\n
The data backs this up. According to the Peterson Institute for International Economics (PIIE), countries with higher tariffs tend to have larger trade deficits,<\/a> not smaller ones. And while tariffs may benefit specific industries in the short term, they also raise costs for American consumers and businesses, leading to lower consumer spending and weaker confidence in the economy.<\/p>\n\n\n\nThat\u2019s exactly what we\u2019re seeing today. Consumer confidence has been falling, with the Conference Board\u2019s index dropping seven points in February, the largest decline since August 2021.<\/p>\n\n\n\n<\/figure>\n\n\n\nInvestors are paying attention: During recent earnings calls, S&P 500 companies mentioned \u201ctariffs\u201d a record 191 times,<\/a> more than in 2018 or 2019, when Trump first imposed duties on Chinese goods. Personal computer (PC) and printer manufacturer HP Inc., for instance, warned shareholders<\/a> during its earnings call last week that \u201cthe current U.S. tariff increases on China\u201d would weigh on profitability this year.<\/p>\n\n\n\n<\/figure>\n\n\n\nHow Investors Should Think About Tariffs<\/strong><\/h2>\n\n\n\nI often say that it\u2019s the policies that matter, not the political parties. That said, here are three things to keep in mind when evaluating tariffs:<\/p>\n\n\n\n
1. Tariffs Are a Tax\u2014And Taxes Raise Costs<\/strong><\/h4>\n\n\n\nIt doesn\u2019t matter who pays the tariff initially\u2014whether it\u2019s foreign exporters or U.S. importers\u2014the additional cost eventually hits Americans\u2019 pocketbooks. History shows that tariffs lead to higher prices for goods, which can hurt economic growth over time.<\/p>\n\n\n\n
In October 1890, shortly after the McKinley tariff went into effect, the New York Times <\/em>reported that companies in multiple industries were raising consumer prices across the board,<\/a> including those in men\u2019s and women\u2019s clothing, groceries, tinware, clocks, books and more.<\/p>\n\n\n\n<\/figure>\n\n\n\nWe\u2019re seeing similar concerns today, with businesses warning about price hikes on everything from electronics to automobiles.<\/p>\n\n\n\n
2. Trade Volatility Hurts Business Confidence<\/strong><\/h4>\n\n\n\nWhen tariffs are used unpredictably, companies hesitate to make long-term investments. This uncertainty can slow hiring, delay capital spending and force businesses to look for alternatives\u2014whether that means shifting supply chains out of China or investing in automation rather than workers.<\/p>\n\n\n\n
Investors should watch sectors most affected by tariffs, such as automotive, manufacturing and energy, where companies are exploring mergers and acquisitions<\/a> (M&A) to hedge against trade risk.<\/p>\n\n\n\n3. Global Trade Relationships Matter<\/strong><\/h4>\n\n\n\nCanada is the United States\u2019 largest trading partner,<\/a> accounting for $413 billion in imports and $349 billion in exports in 2024. The U.S. also relies heavily on Canadian energy imports, including crude oil, natural gas and electricity.<\/p>\n\n\n\nThe unintended consequence of aggressive trade policies could be that Canada\u2014and other key partners\u2014look elsewhere, just as they did after the McKinley Tariff. Several Canadian politicians are now advocating for new pipelines to coastal export terminals,<\/a> reducing dependency on the U.S. market. Once those trade routes shift, they are not easily reversed.<\/p>\n\n\n\nInvesting Without Bias<\/strong><\/h2>\n\n\n\nThe lesson here isn\u2019t that tariffs are inherently bad, nor is it to criticize President Trump. The point is that we, as investors, must think independently and assess policies based on their actual effects, not just their stated goals. History has shown that tariffs often come with unintended consequences, and we\u2019re seeing echoes of the McKinley era today.<\/p>\n\n\n\n
Markets thrive on certainty, and tariffs introduce uncertainty. While they may benefit select industries in the short run, they often result in higher consumer costs and slower economic growth. If McKinley were alive today, he might remind us that by 1901\u2014just a day before his assassination\u2014he had abandoned his hardline tariff stance<\/a> in favor of reciprocal trade agreements. That shift, too, is a lesson in economic pragmatism.<\/p>\n\n\n\nHistory doesn\u2019t repeat, but it often rhymes\u2014and smart investors know when to listen.<\/p>\n\n\n\n
—<\/p>\n\n\n\n
![\"Pride](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/COMM-pride-in-canada-02282025.png\")
<\/figure>\n\n\n\nTrump has made tariffs a cornerstone of his economic strategy, arguing they will bring jobs back to the U.S. and reduce the trade deficit. But just like in McKinley\u2019s time, history suggests tariffs don\u2019t actually reduce trade deficits\u2014they often increase them. Why? Because tariffs discourage trade on both sides, leading to fewer exports and fewer imports.<\/p>\n\n\n\n
The data backs this up. According to the Peterson Institute for International Economics (PIIE), countries with higher tariffs tend to have larger trade deficits,<\/a> not smaller ones. And while tariffs may benefit specific industries in the short term, they also raise costs for American consumers and businesses, leading to lower consumer spending and weaker confidence in the economy.<\/p>\n\n\n\n That\u2019s exactly what we\u2019re seeing today. Consumer confidence has been falling, with the Conference Board\u2019s index dropping seven points in February, the largest decline since August 2021.<\/p>\n\n\n\n Investors are paying attention: During recent earnings calls, S&P 500 companies mentioned \u201ctariffs\u201d a record 191 times,<\/a> more than in 2018 or 2019, when Trump first imposed duties on Chinese goods. Personal computer (PC) and printer manufacturer HP Inc., for instance, warned shareholders<\/a> during its earnings call last week that \u201cthe current U.S. tariff increases on China\u201d would weigh on profitability this year.<\/p>\n\n\n\n I often say that it\u2019s the policies that matter, not the political parties. That said, here are three things to keep in mind when evaluating tariffs:<\/p>\n\n\n\n It doesn\u2019t matter who pays the tariff initially\u2014whether it\u2019s foreign exporters or U.S. importers\u2014the additional cost eventually hits Americans\u2019 pocketbooks. History shows that tariffs lead to higher prices for goods, which can hurt economic growth over time.<\/p>\n\n\n\n In October 1890, shortly after the McKinley tariff went into effect, the New York Times <\/em>reported that companies in multiple industries were raising consumer prices across the board,<\/a> including those in men\u2019s and women\u2019s clothing, groceries, tinware, clocks, books and more.<\/p>\n\n\n\n We\u2019re seeing similar concerns today, with businesses warning about price hikes on everything from electronics to automobiles.<\/p>\n\n\n\n When tariffs are used unpredictably, companies hesitate to make long-term investments. This uncertainty can slow hiring, delay capital spending and force businesses to look for alternatives\u2014whether that means shifting supply chains out of China or investing in automation rather than workers.<\/p>\n\n\n\n Investors should watch sectors most affected by tariffs, such as automotive, manufacturing and energy, where companies are exploring mergers and acquisitions<\/a> (M&A) to hedge against trade risk.<\/p>\n\n\n\n Canada is the United States\u2019 largest trading partner,<\/a> accounting for $413 billion in imports and $349 billion in exports in 2024. The U.S. also relies heavily on Canadian energy imports, including crude oil, natural gas and electricity.<\/p>\n\n\n\n The unintended consequence of aggressive trade policies could be that Canada\u2014and other key partners\u2014look elsewhere, just as they did after the McKinley Tariff. Several Canadian politicians are now advocating for new pipelines to coastal export terminals,<\/a> reducing dependency on the U.S. market. Once those trade routes shift, they are not easily reversed.<\/p>\n\n\n\n The lesson here isn\u2019t that tariffs are inherently bad, nor is it to criticize President Trump. The point is that we, as investors, must think independently and assess policies based on their actual effects, not just their stated goals. History has shown that tariffs often come with unintended consequences, and we\u2019re seeing echoes of the McKinley era today.<\/p>\n\n\n\n Markets thrive on certainty, and tariffs introduce uncertainty. While they may benefit select industries in the short run, they often result in higher consumer costs and slower economic growth. If McKinley were alive today, he might remind us that by 1901\u2014just a day before his assassination\u2014he had abandoned his hardline tariff stance<\/a> in favor of reciprocal trade agreements. That shift, too, is a lesson in economic pragmatism.<\/p>\n\n\n\n History doesn\u2019t repeat, but it often rhymes\u2014and smart investors know when to listen.<\/p>\n\n\n\n —<\/p>\n\n\n\n![\"Consumer](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/COMM-consumer-confidence-02282025.png\")
<\/figure>\n\n\n\n![\"Mention](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/COMM-mentions-of-tarriffs-02282025.png\")
<\/figure>\n\n\n\nHow Investors Should Think About Tariffs<\/strong><\/h2>\n\n\n\n
1. Tariffs Are a Tax\u2014And Taxes Raise Costs<\/strong><\/h4>\n\n\n\n
![\"\"](\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/03\/COMM-headline-nytimes-02282025.png\")
<\/figure>\n\n\n\n2. Trade Volatility Hurts Business Confidence<\/strong><\/h4>\n\n\n\n
3. Global Trade Relationships Matter<\/strong><\/h4>\n\n\n\n
Investing Without Bias<\/strong><\/h2>\n\n\n\n