Trump’s Reciprocal Tariff: Renegotiating with the World

Yesterday, April 2, 2025, President Trump announced new tariffs, referred to as “reciprocal tariffs,” against more than 180 countries simultaneously. Both the magnitude of the tariffs and the number of countries against which they will be levied far exceeded market expectations. This raises new concerns for investors regarding how these new tariff policies will impact the U.S. economy, both in the short-term and long-term.

While policy can be debated on whether or not the new tariffs will bring positive long-term change to the U.S. economy, we believe that additional risk may lie in the method by which the new policy is being implemented. As we have seen in business many times, the right strategy, executed the wrong way, can lead to unexpected negative outcomes. 

Separating Policy from Politics

As an investment advisor, it’s often challenging to present emerging trends in the markets and economy without the message sounding political, especially when policy coming from Washington is driving the trends. When making investment decisions for portfolios, we have found it to be increasingly important to separate politics and policy, requiring us to leave any political biases at the door.

Many investors struggle with this concept because half the country supports Trump, while the other half can’t stand him, and it’s often difficult for investors to set aside their personal and political biases when making prudent investment decisions.   Admittedly, we are living in a time when it has never been more difficult to accomplish this, yet being able to separate the two has never been more important.  A true challenge for both investors and investment advisors alike. 

Trump’s Reciprocal Tariff Plan

Trump presented in his announcement yesterday that these are not just baseless tariffs, but rather reciprocal tariffs based on the current tariffs that exist in these 180+ countries on U.S. goods imported.  More specifically, the Trump administration conducted a “current tariff” calculation, with U.S. reciprocal tariffs equal to 50% of the tariff amounts being imposed on U.S. goods by those countries. 

The overall aim of this policy is to create a more level playing field when it comes to trade with our various trading partners with the simple solution of, “you drop your tariffs on us, and we will drop our tariffs on you”. 

On the surface, from a pure policy standpoint, it makes sense that if Japan is levying 40%+ tariffs on goods imported from the U.S., and the U.S., on average, is only imposing a 2.5% tariff on goods imported from Japan, why is that fair? (I’m just using these tariff percentages for example, the actual tariff amounts are different) By having these large tariff imbalances, it makes the goods produced in the U.S. more expensive when sold abroad, which ultimately hurts manufacturing in the U.S. and the U.S. labor that supports our manufacturing industry. 

According to the Trump administration, this tariff imbalance has been in existence for 20+ years, and has been accepted as the norm, but they made a clear statement yesterday that the time has come to end this imbalance.

I can understand how a tariff imbalance between trading partners can add to the U.S. deficit since tariffs on our goods imposed by other countries make U.S. manufactured goods more expensive when sold abroad, but if we levy little to no reciprocating tariffs, goods produced by those countries that are imported into the U.S. do not face those same price hurdles from the U.S. consumer.  With our government deficits spiraling out of control, taking steps to create a better balance between exports and imports, or at least encouraging the consumer to purchase more U.S.-made goods, probably makes sense in the long-term.

From a pure policy standpoint, we must acknowledge that new reciprocal tariffs, while they may create economic disruption in the short-term, they may also reset the global table on trade to set the U.S. economy on a more sustainable path to prosperity over the long term without having to continue to rely on rising government deficits to finance the trade imbalances.

Risk Exists in the Improper Execution of The Strategy

Only history will be able to tell us whether the new trade policy being implemented will be successful or not, but we have greater concern over the method by which the new policy is being implemented.  If you have trade imbalances with over 180 countries that you are trying to resolve, is it prudent to attempt to renegotiate 20+ years of policy with more than 180 countries in one public announcement?  What is the likelihood that by choosing this approach, agreements will be reached with all 180 countries within the next few weeks to avoid unnecessary harm to the U.S. economy? The chances are slim.

This is where we feel the risk lies as the negotiation process begins with all 180+ countries, because the timeline to resolution is a pivotal piece in determining the impact on the U.S. economy over the next six months. In the past, President Trump focused trade negotiations on just one or two countries at a time, which made it easier to resolve, delay, or negotiate down “trade wars” fairly quickly. Now, attempting to negotiate with 180 countries at once seems unrealistic. While the proposed solution—“You drop your tariffs on us, and we’ll drop ours on you”—sounds simple, it underestimates the complexity of these trade relationships as each country negotiates to protect its own economic interests.

Investment In the U.S. & Jobs

It was a little surreal yesterday seeing the head of the U.S. Auto Workers Union providing full support for a Republican president during the tariff announcement since historically the unions have aligned themselves with the Democratic party, but I think it highlights some of the pain that is being felt in places like Detroit for all of the off shoring of manufacturing and labor over the past 10 – 15 years. While there is real risk to these trade wars and real economic risk to the rapid rollout of these new policies, it may encourage a return of manufacturing to the U.S. with companies like Apple, Toyota, and Nvidia investing hundreds of billions of dollars to build facilities within the U.S. to avoid the assessment of the tariffs. Again, time will tell.

Allocation Shift

While the long-term outcome of these new trade policies is unknown, for investors with short- to medium-term time horizons, I think it’s important to acknowledge the near-term risks given the magnitude of the tariffs, the number of countries against which they are being levied, and the speed of the rollout, to determine how this new policy could impact the U.S. economy over the next 6 months.

With that said, this is not a “run for the hills” moment. We acknowledge at this point the additional challenges that these new reciprocal tariffs present, as well as the unknown timeline for resolving these tariffs with our 180+ trading partners. We will need to closely monitor the economic data over the next few weeks and months to assess its impact on labor markets, the U.S. consumer, the overall economy, and, if necessary, respond with allocation changes within client accounts.  

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.