A Page in the Tariff Playbook

Last Updated: April 16, 2025

Playbook Summary:

Headline risk is especially acute during periods of uncertainty.
Some countries, like Germany, are more vulnerable to trade wars than others.
Broad-based tariffs create more economic inefficiencies than specific tariffs on emerging industries.
Trade uncertainty could delay capital spending, as was the case in the months preceding the election.
The fluidity of exceptions makes it difficult to forecast inflation, creating volatility in fixed income markets.

The Man Who Moves Markets

Apparently, President Trump is a man who can move markets, both to the upside and the downside. During his second term, the President has created a cloud of uncertainty surrounding trade policy, and the various press conferences and social media posts have been tools for volatility. On April 2, investors were quick to dial back risk, but then piled back into the market after the announcement of a 90-day pause on reciprocal tariffs for most countries. But the President is not the first one who’s had an outsized influence on markets. Those who’ve been around markets long enough would know that other individuals have incited market swings during periods of uncertainty. Announcements about the Troubled Asset Relief Program (TARP) in 2008 created greater short-term swings than recent tariff-related news. Other notable periods included 2022, when investors thought the economy was in recession.

Headline Risk Highest During Times of Uncertainty

Hank Paulson, Tim Geithner, and Chair Powell Also Created Wild Swings in 2008 and 2022

Source: LPL Research, Bloomberg 04/16/25
Disclosures: Indexes are unmanaged and cannot be invested into directly. All performance referenced is historical and is no guarantee of future results.

Germany Is Especially Vulnerable

Among the G-20, Germany is the most reliant on exports. Last year, exports were roughly 45% of the German economy, and the U.S. is one of its biggest customers. Key export categories include vehicles, machinery, pharmaceutical products, and electrical equipment.

Germany’s strong reliance on international trade with the U.S., particularly in industries like automotive, machinery, and chemicals, illustrates that neither country “wins” with a trade war. Rather, investors must estimate who is least hurt.

Germany Is Heavily Reliant on Exports

But U.S. Is Least Exposed Among G-20

Source: LPL Research, Census Bureau 04/16/25

Summary

Headline risk becomes particularly significant during periods of uncertainty, affecting global economic dynamics. Some nations, such as Germany, are more exposed to these risks due to their trade-dependent economies. Broad-based tariffs tend to exacerbate economic inefficiencies, leading to a greater deadweight loss compared to more targeted tariffs on emerging industries. Additionally, trade uncertainty often delays capital investment, as evidenced in the months leading up to the election. The unpredictable nature of tariff exceptions further complicates inflation forecasting, which, in turn, creates volatility within fixed income markets.

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.

Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Asset Class Disclosures –

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.

Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.

High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor's holdings.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value

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Dr. Jeffrey Roach

Jeffrey Roach guides the overall view of the economy for LPL Financial Research and has over 20 years of experience in investing and economics.