Written by: Sean P. Smith, CFA
The details of the tariff strategy that were unveiled at the White House on April 2nd have roiled global financial markets, and every update on the issue in the days since has resulted in heightened market volatility.
Economists can debate the potential merits and drawbacks of a shift toward returning to broad-based domestic manufacturing. But such debates miss a critical challenge with the current tariff-based approach toward achieving that ultimate goal.
Specifically, the announced tariffs rely on fundamentally temporary measures.
Presidential Executive Orders, Proclamations, and Memoranda – tools used extensively in these tariff policies – require only the President’s signature to enact and, importantly, can be rescinded or modified just as easily, whether by the sitting President or their successor.
Why does this matter?
Corporate decisions regarding global supply chains and manufacturing infrastructure are inherently long-term commitments. They involve substantial capital investments and strategic planning horizons spanning years or even decades.
Given the scale of investment required, global corporations – with millions or billions of dollars at stake – are unlikely to base significant capital allocation decisions on policies that can change overnight with a mere signature. The potential for sudden policy shifts creates immense risk, potentially threatening competitive positions, profitability, and – at the extreme – even the survival of a business entirely.
What does this mean?
In the short term, we expect the ongoing uncertainty regarding tariff rates to mean continued market volatility and downward revisions to global economic growth estimates.
In the long term, absent steps that ensure greater and longer-term predictability, the current broad-based tariff policies appear doomed to failure in achieving their ultimate objectives. Bilateral trade deals will be made, but for tariff actions to result in a large-scale fundamental shift in global manufacturing, it would likely require more substantial action by Congress to make such policies more durable. To date, however, Congress has exhibited little interest in taking back its authority over tariffs, either to scale them back or to make them stick.
Related: Take Charge: How to Regain Control of Your Financial Future