Understanding Tariffs: Economic Impacts and Market Reactions

In our latest video, Brendan Malone kicks off a new Greenrock Research series focused on timely topics in capital markets. This first installment dives into the resurgence of tariffs as a key economic tool and their implications for the U.S. economy and investors.

Watch the video below to hear his full perspective.

Why Are Tariffs Making Headlines Again?

Tariffs — taxes imposed on imports — have reentered the spotlight in recent years as policymakers, particularly the Trump administration, use them to achieve several stated goals:

• Raise federal government revenue

• Boost American manufacturing

• Negotiate stronger trade agreements

However, some of these goals appear to be at odds with one another. For example, if the threat of tariffs is used purely as a negotiation tool and then removed after trade deals are signed, it may discourage companies from investing in domestic manufacturing infrastructure. Why build in the U.S. if protectionist barriers could vanish within a year or two?

A Sharp Turn in U.S. Trade Policy

The effective tariff rate at the end of 2024 stood at 2.3%, according to Yale’s Budget Lab. Following multiple rounds of tariffs and renegotiated trade deals, that rate has jumped significantly — now hovering near 15.8%. This aggressive approach to tariffs hasn't been seen in U.S. policy since the Hawley-Smoot Act of 1930, widely regarded as a contributor to the Great Depression.

What Does It Mean for the Economy?

While the long-term effects are still playing out, Greenrock's position is clear:

Tariffs are a negative force on the U.S. economy.

Here’s why:

• Consumer Impact: Tariffs raise the cost of imported goods. While there’s a short-term buffer due to existing inventories, prices will likely rise once new, tariff-laden shipments hit the shelves.

• Purchasing Power: Over time, tariffs act as a hidden tax on American consumers, reducing their real purchasing power.

• Market Reactions: We’ve seen clear patterns in U.S. equity markets — drops when new tariffs are introduced, and rebounds when they’re eased or eliminated.

Why This Matters to RIAs

For Registered Investment Advisors (RIAs), understanding macroeconomic shifts like tariff policy is crucial to guiding clients and managing portfolios. As part of our commitment to RIAs, Greenrock Research continues to monitor trade developments and their downstream effects on portfolios, asset classes, and investor behavior.

Stay Informed with Greenrock

This is the first in a new series of short, informative market briefings. As always, our mission is to empower RIAs with institutional-caliber insights, analysis, and partnership.