This was one of the harder commentaries we’ve written in recent memory. From the postwar era to the 1990s, the U.S. led the effort to build a global system rooted in free trade – founding institutions like the World Trade Organization, crafting major deals like NAFTA, and steadily lowering tariffs. The result was global integration, with supply chains, capital flows, and economies becoming increasingly intertwined.
The new tariff regime represents more than just a policy shift, it’s a philosophical rupture with that decades-long tradition. And it’s hard to assess what this rupture means, because we haven’t seen tariffs of this scale in over a century.
Markets are grappling not only with the magnitude of the changes, but also with their ambiguity. As one economist put it, “I’ve gotten used to not knowing what tariffs are going to be in the near future, but not knowing what tariffs are, in the present, is an interesting plot twist.”
While the policy direction and uncertainty are unlikely to benefit the real economy or financial markets in the near term, it’s also fair to say this moment was a long time coming. Rising wealth inequality – real or perceived – has fueled populist angsts, and globalization often becomes the target. A more direct confrontation with China, a world super-power, also seemed inevitable.
Highly diversified portfolios have helped Annandale weather the volatility thus far, and we hope that continues, but this is a good time to remember that enduring volatility is the price investors pay for equity-like returns.