Scott’s Advice: What to Do (and Not Do) Amid Tariff Chaos

TL;DR

1. Trump’s tariffs spooked the market - and investors paid the price

2. Winners and losers in the new tariff economy

3. What’s next for investors?

Markets Tank as Trump Revives Depression-Era Tariffs

President Donald Trump announced a 10% tariff on all U.S. imports, alongside higher-tiered rates for goods from more than 57 countries. The move effectively scrapped decades of multilateral trade liberalization and sent markets tumbling.

• The move pushes the average U.S. tariff rate above the levels set by the Smoot-Hawley Tariff Act of 1930, which economists widely blame for worsening the Great Depression.

They are nearly 10x the size of those imposed during the Trump-Pence Administration.

The math behind the tariffs? A back-of-the-envelope formula:

This is essentially what you get if you ask ChatGPT or other AI models to come up with an “easy” tariff policy.

What stood out to me was a recent Washington Post piece explaining how this calculation unfolded. Trump asked his team to figure out the actual effective tariff rates by country, which is hard to do, since tariffs vary by item and depend on trade relationships. His team did the work, ran the analysis, and came back with the data. Trump looked at it and basically said, “I don’t like the truth because it doesn’t fit with my narrative.” He then made up “the truth” and that’s what he shared in his Rose Garden Liberation Day speech.

Here is what the new tariff policy means in practice:

• Countries with large trade surpluses get hit hardest — regardless of whether they’re strategic allies or adversaries.

• It penalizes inputs, not just finished goods: 56% of U.S. imports are raw materials and parts used in domestic manufacturing.

• It even applies to countries with almost no economic significance - even uninhabited island nations (e.g. the Heard and McDonald Islands in the Antarctic) 

The markets tanked. In the two trading days following Trump’s announcement, the S&P 500 dropped to its lowest level in 11 months, erasing $5 trillion in market cap. The Nasdaq followed the Russell 2000 into bear market territory, down over 20% from its peak in December. According to Bloomberg, the speed of its drop is rivaled only by the markets’ behavior during the pandemic and dot-com implosion. 

JPMorgan economists raised the odds of a U.S. and global recession to 60% from 40%.

An argument I keep seeing, and which Trump’s Treasury Secretary, Scott Bessent made, is: This is a Mag 7 problem, not a MAGA problem. His point is that, yes, we’ll see multiple contractions, but the top 10% owns nearly 90% of the stock market, so this sell-off mainly affects rich people.

That argument has now been twisted into a false claim: that the stock market has no correlation with the real economy, and its decline won’t impact poor people. That’s just not true. The stock market is a reflection of the real economy — not the only one, but an important one. When earnings contract and tariffs rise, companies importing goods bear the cost. That will lead to higher prices and layoffs.

So, yes, rich people are affected. But poor people are too. A market downturn eventually trickles down and translates to job losses, hiring freezes, and a brutal market for recent grads. What started as a valid point about equity ownership has been perverted into some weird justification for tanking the economy at large.

Market Shifts: Who’s Winning and Losing?

Winners

• Gold: Classic flight to safety. Gold hit all-time highs; futures up nearly 14% YTD.

• Companies with domestic manufacturing (e.g., Tesla): Every U.S.-sold Tesla is built domestically, although the company still imports some of its parts. In contrast, 55% of Toyotas and 48% of General Motors sold in the U.S. are imported.

• Mortgage-sensitive sectors: Mortgage rates typically track the yield on the 10-year Treasury note, which falls when investors flock to it as a “risk-free” investment. The 30-year mortgage rate fell three basis points last week, lifting Redfin stock nearly 7%.

Losers

• Big Tech: The Magnificent 7 lost nearly $2 trillion in two days— equivalent to almost the entire German stock market. Apple and Nvidia were hit hardest, with both falling 16%.

• Financials: JP Morgan, Goldman Sachs, Bank of America, and other banks dropped on fears of reduced consumer spending and a pullback in IPOs and M&A. 

• Consumers: The new tariffs will raise inflation by 1%–1.5% and cost the average household $3,585 in the form of higher prices. 

  • For example: 77% of toys sold in the U.S. are imported from China. As a result of the new tariffs, toy prices could jump as much as 50%.

What’s the difference?

Tariffs are making a company’s operational footprint matter more. More domestic-focused companies like Tesla, Redfin, and Procter & Gamble are performing better than internationally exposed firms like Apple, Nvidia, and Toyota. Investors are now revising ratings for companies based on geographic insulation and pricing power.

Why do U.S. companies trade at higher multiples than their global peers? One reason is what I’ll call the separation of business and state — that is, business embraces rule of law and competition, and the government stays out of the way.  Now, just a few months after inauguration, the rule of law and the separation of business and state, once our defining strengths, are eroding. All of a sudden, the U.S. brand is about kleptocracy and sclerotic decision-making.

What Should You Do?

Scott’s take to young Investors (20s–40s)

If you’re in accumulation mode with a 10-to 30-year horizon, corrections can be a gift. 

This is a great time to say, “how could I cut my expenses as a young person and invest more?” Use a budgeting app to evaluate your spending, downgrade your Equinox membership, partner with your boyfriend or girlfriend to try and save a little bit of extra money, and invest any incremental savings you have in the market. 

Here’s what you should do with your existing investments: nothing. You do not wanna make big decisions from a position of emotion. 

Scott to those nearing retirement (50s–70s)

Get a colonoscopy. Forgive yourself, be nicer to people, order the good wine.

But on a serious note, I don’t like to give event-specific financial advice, but I'll say what I’m doing. First off, don't panic sell. Trump could announce all tariffs are off this week, and we’re off to the races.

Instead, work with a financial advisor or ask yourself, “Am I too invested in the U.S. market? How can I thoughtfully, rationally, and in a mature manner start to diversify away from a geographic concentration?”  Diversification is even more important for older people because they don’t have the time to make it back. Diversification is your Kevlar.

Scott’s Prediction:

The market could decline another 5,000 points this week; it could go up 3,000 points. The only thing I’m fairly certain about is volatility. Don’t try this at home, but you’re going to see a lot of traders make money by buying and selling options because we’re about to see the VIX (an index that measures expected market volatility) go crazy.

Mia’s Bonus Reads

1. Most countries’ tariff rates are far lower than Trump claimed

2. Is this America’s Brexit?

3. Charted: When uncertainty went up, loan issuance, IPOs, and M&A activity went down