Introduction

Recent changes in U.S. trade policy have brought tariffs to the forefront of economic discussions. As a Sequoia client, you may be wondering how these policies might affect your investment portfolio and financial future. This white paper aims to provide you with a clear, balanced understanding of current tariff policies, their stated objectives, potential economic impacts, and considerations for your investment strategy.

At Sequoia Advisor Group, we believe in empowering our clients with educational, nonpartisan information that helps you navigate complex economic environments with confidence. Rather than advocating for any particular political position, our goal is to present a thoughtful analysis of tariffs and their potential implications for investors like you.

This paper examines both the potential benefits that proponents cite and the risks that economists and market analysts have identified. By understanding these different perspectives, you'll be better equipped to work with your Sequoia advisor to make informed decisions about your portfolio in the context of evolving trade policies.

Stated Objectives of Current Tariff Policies

Ensuring Reciprocity in Trade Relationships: The administration aims to address perceived imbalances in trade relationships, particularly focusing on countries with significant trade surpluses with the United States.

Protecting National Security Through Industrial Capacity: Maintaining domestic production capabilities in strategic industries is viewed as crucial for national security.

Reducing Persistent Trade Deficits: A key objective is reducing the U.S. trade deficit through a combination of increased exports and reduced imports.

Revitalizing Domestic Manufacturing: Tariffs are intended to support the revival of U.S. manufacturing capacity, particularly in strategic industries.

Protecting American Workers: Policy makers emphasize the role of tariffs in protecting American jobs and wages from what they view as unfair foreign competition.

Leveraging Negotiation Power: Tariffs serve as leverage in trade negotiations, aiming to secure more favorable terms in future agreements.

Potential Economic Benefits

Revenue Generation: The Tax Foundation estimates tariffs have generated $1,523.3 billion in revenue, providing a significant source of federal funding. ^[2]

Potential for Reshoring and Domestic Investment: Tariffs create incentives for companies to relocate production to the U.S., particularly when combined with policy stability and other supportive measures. This reshoring trend can lead to increased domestic investment and job creation.

Protection for Strategic Industries: Tariff policies aim to maintain economic opportunities for workers without advanced degrees, supporting broad-based economic participation. This is particularly important in manufacturing and related sectors.

Long-term Industrial Development: Proponents argue that temporary protection can lead to the development of globally competitive industries, citing historical examples from South Korea, Japan, and China.

Potential Risks and Challenges

While tariffs may serve strategic objectives, they also present several risks that investors should consider:

Macroeconomic Risks

Economic Growth Slowdown: According to JP Morgan Research, 2025 real GDP growth has been revised downward to 1.6%, a 0.3% reduction from previous estimates, due to heightened trade policy uncertainty and the effect of existing tariffs. The Tax Foundation estimates that current tariffs will reduce U.S. GDP by 0.4%.

Recession Risk Elevation: JP Morgan Research has increased its estimate of global recession risk to 40% for 2025, up from 30% at the start of the year, citing the administration's shift in tariff policy as a contributing factor.

Inflation Pressure: Tariffs function as a tax on imports, often leading to higher consumer prices. JP Morgan estimates that tariffs already imposed will create a bump to headline inflation, pushing up consumer prices by 0.2 percentage points.

Market and Sector-Specific Risks

Supply Chain Disruption: The current tariff strategy aims to reshape global supply chains, encouraging reshoring and reducing dependence on certain countries, particularly China. While this may yield long-term benefits, the transition period creates significant risks, including production delays, capital expenditure requirements, and operational efficiency losses.

Input Cost Inflation: Tariffs on intermediate goods and raw materials increase input costs for downstream manufacturers. The steel and aluminum tariffs, for example, raise costs for industries ranging from automotive to construction to consumer goods.

Retaliatory Measures: Trading partners have responded to U.S. tariffs with retaliatory measures targeting American exports. China has retaliated on approximately $33.4 billion of U.S. exports at rates of 10-15%. Canada has placed 25% retaliatory tariffs on $20.8 billion of U.S. exports, with more scheduled.

Market Volatility: Trade policy uncertainty typically increases market volatility as investors struggle to price in complex, evolving scenarios. The February flash services PMI slipped below 50 for the first time in two years, suggesting deterioration in business confidence.

Sector-Specific Impacts

Manufacturing and Industrial: The manufacturing sector faces a complex mix of risks and opportunities. Protected industries like steel and aluminum may benefit from tariffs but face risks if protection is temporary or if downstream demand declines. Companies using tariffed inputs face cost pressures, particularly if they compete with imports not subject to the same input tariffs.

Technology: Tech companies face several tariff-related challenges, including supply chain complexity, China exposure, and potential impacts from semiconductor tariffs. Tech products often involve components from multiple countries, making tariff impacts difficult to predict and mitigate.

Consumer Goods: Consumer-focused companies face distinct risks, including price sensitivity in an inflationary environment, margin pressure as retailers and manufacturers absorb tariff costs, and potential shifts in consumer spending patterns.

Financial Services: Financial institutions face indirect but significant tariff-related risks, including potential deterioration in credit quality, trading revenue volatility, and changes in the interest rate environment due to inflation pressures.

Considerations for Investors

Asset Allocation Strategies

Defensive Positioning: Some investors may find value in exploring sectors historically considered more resilient during periods of economic uncertainty. These sectors may include companies with strong balance sheets and consistent cash flows. This should be evaluated in the context of your specific objectives.

Fixed Income Duration: For investors concerned about inflation, a discussion with an advisor about fixed income duration strategies may be appropriate. Adjusting the duration of bond holdings can influence interest rate sensitivity and inflation exposure.

Alternative Investments: Certain alternative investment strategies—such as those with historically low correlation to traditional stocks and bonds—may offer additional portfolio diversification. These investments are complex and may not be suitable for all investors, so thorough due diligence and advisor guidance are essential.

Sector Positioning

Sector Sensitivities and Opportunities: Tariff policies can impact sectors in different ways. While some industries may face headwinds, others could experience favorable conditions. Investors should consult with their advisor to evaluate sector exposures in light of evolving trade dynamics.

Managing Sector Exposure: Some industries—particularly those with complex international supply chains or high reliance on imported raw materials—may face increased volatility or cost pressures. Monitoring and adjusting exposure to these sectors, in consultation with an advisor, may help manage portfolio risk.

Quality Focus: Regardless of sector, companies with durable business models, operational flexibility, and the ability to navigate changing input costs may be better equipped to manage tariff-related challenges. A focus on quality remains an important consideration in uncertain environments.

Geographic Diversification

Domestic vs. International Exposure: Global diversification continues to play an important role in portfolio construction. However, tariffs and trade disputes may impact geographic exposures differently.

Emerging Markets Consideration: Emerging markets, which often depend on exports and global growth, may experience heightened sensitivity to trade tensions. Geographic exposure should be regularly reviewed to ensure it remains appropriate to the investor’s goals and risk profile.

Time Horizon Perspectives

Short-term Volatility Management: Trade-related headlines and policy shifts may create near-term market volatility. For investors with shorter time horizons, maintaining appropriate liquidity and risk exposure is essential.

Medium-term Adjustment: Over the next several years, changes in global trade policy and supply chains may reshape certain industries. Staying flexible and informed can help investors navigate this transitional period.

Long-term Structural Changes: Over time, global trade patterns may evolve significantly. Long-term investors may benefit from identifying trends that could shape future opportunities, while avoiding overreaction to short-term events.

Sequoia's Perspective and Guidance

At Sequoia Advisor Group, we emphasize a balanced, long-term approach to navigating economic policy changes. The information presented here is intended for educational purposes only and should not be construed as personalized investment advice. Tariffs may present both potential benefits and risks, and we encourage you to discuss these issues with your qualified financial advisor to ensure that any decisions are aligned with your unique financial objectives and risk tolerance.

In a general context, investors may consider the following approaches:

• Maintaining a Diversified Portfolio: Diversification across asset classes, sectors, and geographies is widely regarded as a prudent strategy for managing policy-related risks. However, the suitability of this approach depends on your individual circumstances.
• Focusing on Quality: Companies with robust balance sheets, sustainable competitive advantages, and pricing power may be better positioned to navigate economic policy shifts. It is important to evaluate these factors within the context of your overall investment strategy.
• Considering Your Time Horizon: Your investment time horizon can influence how you might respond to tariff-related risks. Long-term investors may view short-term volatility as part of broader market fluctuations, but specific strategies should be discussed with your financial advisor.
• Regular Portfolio Reviews: We recommend that you work with your Sequoia advisor to regularly review your portfolio, particularly as trade policies evolve, to assess potential impacts on your specific holdings.
• Maintaining Perspective: Economic policy changes, including tariffs, represent just one of many factors that may influence markets and investment outcomes. A comprehensive financial plan that considers your entire financial picture remains essential, and any adjustments should be made in consultation with your advisor.

References

1. U.S. Bureau of Economic Analysis (2023). "U.S. International Trade in Goods and Services, December and Annual 2022 " Retrieved from https://www.bea.gov/news/2023/us-international-trade-goods-and-services-december-and-annual-2022
2. Tax Foundation. (2025). "Tracking the Economic Impact of the Trump Tariffs." Retrieved from https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/
3. JP Morgan Research. (2025). "US Tariffs: What's the Impact on Global Trade and the Economy?" Retrieved from https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs/