INSIGHTS

July 28, 2025

Q & Amy

Edition 17

Angus: What are the latest developments in tariff policy?

Amy: Tariff policy is important, but it is not as important to the market as the tax policy that was just passed, which will put money into the hands of consumers and businesses. The market has considered the consequences of tariff policy and is looking forward to tailwinds from tax relief, AI investment, and lower interest rates.

The promise of “90 deals in 90 days” was aggressive by anyone’s standards. August 1st is the administration’s new “hard deadline.” Tariff deals have been difficult to reach because of Trump’s unacceptable demands, unclear objectives, and lack of commitment to tariff stability. There is a wide variation in tariffs by country and product, but the average effective rate is roughly 16%, up from 3% in January. Increased costs are either absorbed by companies (lower margins) or passed on to consumers.

While tariff revenues have surged, the policy comes with unintended consequences. The dollar is down 11% off its January peak, increasing import costs. Export-heavy companies will benefit from this, but smaller and mid-sized companies with supply chains outside the US will be hurt. More importantly, with the uncertainty around US policy, our trading partners will increasingly commit to trade deals with other countries—in other words, move their supply chains away from the US in search of stability.

Amy Bush, CFA

Chief Investment Officer

C. Angus Schaal, CFP^®

Senior Managing Director

Angus: Why is the market so positive on the passage of Trump’s mega-tax bill?

Amy: The market cares about the measures within it that will improve productivity, profitability, and gross domestic product (GDP) potential; it is not an emotional entity. It is not focused on the human toll or the cost, which will be spread over ten years and increase our deficit.

Angus: What specifically does the market like?

Amy: The most important aspect was the extension of the 2017 tax cuts at all income cohorts, which, if expired, could have resulted in an effective tax increase—especially important for those making less than $100,000. Additionally, the market welcomed provisions such as a tax deduction for those who earn tips, an increase in the standard deduction, an increase in the child care tax deduction, the expansion of 529 savings plans to cover credentialing for areas like the trades, a new deduction on car loan interest for vehicles made in the US, tax-advantaged savings accounts for newborns, and some tax relief for seniors on Social Security benefits. Businesses will receive more tax relief on spending, building, and research and development, including accelerated deductions and credits for building things. This type of tax benefit has historically created a multiplier effect—more spending and more jobs that supercharge the economy. Additionally, deregulation policy will also help: new stress tests for banks will allow them to lend more; deregulation within the energy sector will support new pipelines and drilling to maintain our energy independence; and there will likely be an increase in mergers and acquisitions compared to the Biden administration, which was generally not considered business-friendly.

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