The tariffs that the Trump administration has imposed on Mexico, Canada, and China have been a hot topic across the Americas.
In an article by The Wall Street Journal, President Trump’s approach to tariffs was criticized as potentially "The Dumbest Trade War in History." While the remark highlights the absurdity some see in the situation, it could actually be downplaying the impacts. Mexico and Canada, key allies, have been burdened with a hefty 25% tariff, whereas the tariffs on China stand at a lower 10%.
Recently, President Trump decided to postpone the tariffs on Mexico and Canada for an extra month. This delay comes with promises from these nations to help reduce fentanyl smuggling across their borders. In return, the U.S. aims to limit the flow of firearms into Mexico. The tariffs on China, however, were implemented as scheduled.
Hopefully, both Mexico and Canada will succeed in their efforts so these tariffs can be scrapped entirely. Yet, many wouldn’t be shocked if the conditions change to seek further negotiations, possibly leading to the tariffs being enforced anyway.
For Americans already grappling with inflation, these tariffs could mean an increase in everyday costs. Remember, while countries don’t directly pay tariffs, importers do—and they typically pass these additional costs onto consumers.
Imports from Canada and Mexico account for nearly half of all U.S. food imports, supplying almost all avocados, with Mexico being a major supplier of produce and Canada leading in meat and grain imports. So, if these tariffs come into effect, brace for higher grocery bills.
Car prices could see a spike of roughly $3,000, and fuel costs may also climb. Although Canadian oil will face a 10% tariff as opposed to 25%, the difference remains substantial, given that 61% of U.S. imported oil comes from Canada.
Already expensive, housing costs would further escalate. Notably, over 70% of lumber and gypsum—essential for drywall—are imported from Canada and Mexico, according to the National Association of Home Builders.
In a recent issue of my newsletter, The Oxford Income Letter, I warned subscribers of expected inflation hikes in 2025. Inflation might reach at least 4%, and the yield on the 10-year Treasury could climb to 5.6%, driving living costs up and possibly squeezing the stock market.
However, this change isn’t likely immediate. I predict these effects may materialize more in the latter half of the year.
Meanwhile, here are a few strategies to brace for rising costs:
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Invest in Dividend Growth Stocks: I strongly advocate for dividend growth stocks because they can protect your buying power in inflating economies. If you collected $500 in dividends last year and they grow by 10% annually, you’d make $550 this year. Therefore, even with inflation surpassing 5%, you’d still have increased purchasing power.
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Hold Some Cash: Given the rising rates, you can earn reasonable interest from money markets or short-term CDs. Shop around to secure the best interest rates. Having cash reserves also enables you to invest in dividend growth stocks when opportunities arise.
- Consider Commodities: Investing in commodities—or related stocks/ETFs—can shield you against price hikes. Food- and metals-based stocks and ETFs become especially appealing when prices start trending upward.
Turning to the broader picture, it’s unfortunate that despite some of President Trump’s policies like deregulation and tax cuts being growth-oriented, this tariff strategy could potentially offset those benefits. Regardless of who holds the reins in Washington, there seems to be a long-standing tradition of questionable decision-making. As investors, it’s crucial to safeguard against such policy missteps.
