By Keith Gangl
The speculation about potential tariff impacts on the US economy and markets has been pervasive since February. President Trump’s April 2 announcement, proclaimed as “Liberation Day,” surprised markets with its sweeping breadth and rapid implementation timeline – tariffs were announced on April 2 and implemented just days later on April 5 and April 9.
Investors are debating whether President Trump’s approach with tariffs is creating economic uncertainty or simply represent his “art of the deal” strategy. Most investors had anticipated Trump would follow his first-term playbook, where he successfully used tariffs (or threats of tariffs) as a negotiating tool to secure better trade terms for the US. This belief was upended on April 4 when substantial tariffs were applied globally to both friendly and unfriendly trade partners, shifting sentiment from “art of the deal” to economic uncertainty. However, on the afternoon of April 9, the President reversed course, reducing country-specific tariffs to a universal 10% for all trade partners except China. This caused the market to rally aggressively and shifted sentiment back towards the “art of the deal” interpretation.
Tariffs have been utilized in the United States for over a century, but the effective tariff rate has steadily decreased over recent decades until Trump began using them as a negotiating tool in 2018 to pursue “fairer” trade relationships. For the past several decades, the effective tariff rate remained below 2% before Trump’s first presidency, then rose to approximately 2.5%. With the initially proposed April 2 tariffs, the effective rate would have jumped to over 23% – eclipsing the nearly 20% rate from the Smoot-Hawley tariffs of 19301 (see chart below). However, the April 9 policy adjustment will likely result in a more moderate effective rate.
The rapid shifts in tariff policy have generated significant market uncertainty, contributing to intraday swings of 5% or more in stock markets, with the S&P 500 advancing more than 9% on April 9 alone. This volatility reflects investors’ preference for certainty, as the moving target of tariff policy complicates business planning and forecasting.
One notable impact of the tariff uncertainty has been the downward revision of earnings forecasts for the S&P 500 companies. Entering 2025, the projected earnings growth for the S&P 500 was 15%, but it currently stands at less than 11%. S&P 500 earnings forecasts for 2025 have fallen from $275 per share in December 2024 to $269 in April 20252 (see chart below).
The broad implementation of the newly enacted tariffs will have wide-ranging implications for companies and consumers alike. As we enter earnings season, when companies report their performance and provide outlook guidance, it will be challenging for businesses to offer credible forecasts given the uncertain tariff landscape. The evolving tariff situation makes it particularly difficult for companies to evaluate near-term business impacts.
Whether President Trump will achieve the “art of the deal” and improve trade fairness with US trading partners, or whether his tariff strategy will continue to create economic uncertainty, remains to be seen, though events of April 9 suggest a possible shift back toward the “art of the deal” narrative. This volatility underscores the importance of having a comprehensive financial plan that balances safety and growth during uncertain economic times.