New economic agenda could bring market volatility

With the return of the Trump administration, I find myself having a lot of conversations about tariffs. I've written columns about tariffs in the past and familiarized myself with the philosophy and history of this specific type of taxation, but with Trump 2.0 now in motion, investors are becoming more focused on this topic and I expect discussions of this topic to increase in my day-to-day activity.

To prepare for this likelihood, I decided to do a bit more targeted research on the topic, using the only guinea pig I have easy access to: my own family. In order to do this research, I had to leverage a traditional January process I was already engaged in, which is the annual purging of Ruiz family junk subscriptions and restructuring or reconsideration of household services such as cell phone, streaming services and cable accounts.

The further tariff research required me to delve into the abyss of the family's Amazon order history and Southwest Visa card, which tells most of the story on where our goods-based discretionary money goes month to month. This is always a traumatic process for me, as it tends to raise my blood pressure, but this year I endeavored to suffer in silence as prior findings were not, shall we say, "effectively communicated" to my brood, leading to family in-fighting. So, armed with curiosity and fortitude I set out to discover how much this tariff idea is likely to cost the family.

I think January is a decent month to survey our spending habits, as the Christmas gift spending binge is over, and goods consumption tends to be much more "typical." Month-to-date as I write this column, 29 items had been ordered on Amazon, and my wife had been to Costco once. I also went to Harbor Freight once for hardware needs. Most of the items ordered on Amazon were consumable, mainly vitamins, tea and other personal care related goods. The Costco trip was almost entirely groceries but did include some gloves and a pair of pants for me. Total routine household consumption-based spending was about $1,600 for the month. There were eight non-consumable goods purchased on Amazon, five by me.

Here, however, is where it gets complicated. Most of the consumables (vitamins, tea, groceries), which were about 50% of the total spending, seem to be produced in the U.S., but it is impossible to know if all the inputs were produced domestically (some produce surely came from Mexico), but for discussion purposes, let's say they were, so no tariffs there.

The Costco pants and gloves were made in Asia, not China; the eight products purchased on Amazon were all made in China, as were all the items purchased at Harbor Freight. The items purchased from non-China Asian producers totaled about $50, the other items made in China (ladder, floor jack, duffel bags, various hardware, cooler) around $650. Nothing on the goods on this limited survey list was produced in Canada or Mexico.

Armed with this data, and Trump's rhetoric, let's do some math. Right now, President Trump has revealed his intention to levy tariffs on goods imported from China of an additional 10%, and goods produced in Canada and Mexico of 25%. I have not seen any mention of other Asian nations such as Vietnam or the Philippines. He has also threatened to levy tariffs as high as 50% on goods made in China, but most analysis I have seen concludes this is unlikely.

With the information we have, my math indicates the announced tariff intentions would have cost the family about $65 in additional "taxes" so far in January. Not an insignificant amount, but not a real game changer either. I am also reminded of the process of checking out at Harbor Freight when the very nice attendant scanned a coupon she had under the counter and took $25 off my total before I even knew what she was doing, so obviously our retailers have the ability to absorb some of the potential cost changes due to tariffs.

So, what do we do with this experiment? Well, collectively tariffs clearly could raise costs for American households, and if we extrapolate the cost increase due to the hypothetical tariffs across my family's January consumption it is about a 4% cost increase, which will feel inflationary, and perhaps investors should be concerned.

Admittedly, with my investor hat on, tariff talk considered in isolation does cause me some consternation, and until we get a more thorough look at the rest of the new administration's economic and tax agenda, markets may continue to experience stress in reaction to President Trump's very loud tariff rhetoric.

The Trump administration is clearly determined to reveal and pass its economic agenda as quickly as possible, but with thin margins in both houses of Congress quick may be relative. Tariff talk will matter to Wall Street, but so will capital gains tax rates, income tax reform and energy policy. 2025 looks to be a year of great change; investors aren't always great at dealing with change. While euphoria seems to be in control of markets, I believe the most likely outcome over the next few months is increased volatility. Hold on.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.