3 Things You Need to Know This Week | The Road We See Ahead for Tariffs & Trade Wars (Apr. 14, 2025)

Transcript

Mackenzie Winner:

Hello, and welcome to 3 Things You Need to Know this Week— our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. This week, we'll be deviating from our normal framework to take a closer look at tariffs.

Escalating tariffs, fears of trade war and big market swings are contributing to high uncertainty for investors. Tariffs are a real negative, but what matters most is their scope and how much of this has already been pre-priced by markets.

To what extent are tariffs implemented, or how might companies find ways to work around them? How will the US and other countries proceed—with compromise, or retaliation? When there's this much uncertainty, we focus on narrowing things down to the most likely outcomes. Here are three possible scenarios we see:

First, strong pushback from the courts in Congress.

In our view, it's likely courts will find some— or many—of the proposed US tariffs unconstitutional, which means they require congressional legislation to be implemented. At the very least, it's likely to be hotly contested and could quickly reach the Supreme Court. Republicans have slim margins in Congress— only a few defectors, perhaps from battleground states and districts, could sink all this very quickly.

Already a symbolic Senate vote disavowing Trump's Canada tariffs passed on April 2nd with some Republican support. It may never become law, but it hints at the underlying reality and markets would likely see relief from any mitigation.

Second, countries come to the negotiating table.

Many countries have demonstrated a willingness to negotiate, including Canada, Japan, Mexico, the UK, much of Europe and beyond. Many see President Trump's tactics as starting points for negotiation— the goal being to have other tariffs reduced toward US exports. Trump himself has offered this path. If negotiations result in compromise, market relief could be swift, as a better-than-expected outcome arises. The 90-day pause President Trump announced last Wednesday could be a material step towards the second outcome. We believe these first two scenarios, or some combination of them, are the most likely outcomes of the current tariff situation. Either scenario would fit the correction narrative where a disproportionate fear of plausible negative proved short lived and ultimately fuels the bull market. However, a third, and more negative potential outcome is also on the table:

Countries retaliate against the US with tariffs.

This scenario could be a significant negative. Up to this point, we have argued implemented tariffs don't have the scale to erase global GDP growth. But a full implementation of US tariffs— with broad retaliation from other major economies, including potential collusion to withstand the US— would constitute a meaningful negative to the global economy. In our view, this is an unlikely outcome, but it's not impossible either. While fear and uncertainty are still high, both should subside over time—and potentially sooner than many expect. Whether there's more downside immediately ahead or the worst is already behind us, we believe the best course of action for investors is to remain disciplined and prepare for the coming rebound. History indicates rebounds arrive faster than many believe. Stocks don't wait for total clarity or an "all-clear" signal. Following steep, sharp downturns, stocks typically start rallying amid widespread negative sentiment—long before most investors can fathom a brighter future ahead.

And that's it for this episode of 3 Things You Need to Know This Week!

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit fisherinvestments.com. Thanks for tuning in and don't forget to 'like' and 'subscribe'!