Let’s take a look at what the impact of these tariff wars mean to your retirement.
Have you heard the tariff buzz lately? This is supposedly some next-level stuff. Okay, now let’s talk for real. When any economic situation causes this much concerns in the stock market, it’s important to take a step back, assess the situation, and understand exactly how it will affect you (and quite often these political battles have VERY LITTLE EFFECT on us individually).
A tariff is a tax that the government places on a group of imported goods. Tariffs can be included on just about anything imaginable. The theory behind tariffs is simple – at least on paper. The goal is to make marketplace competition fair. This helps economies grow as nations compete to sell their resources (again this is on paper). But what happens over time is that politicians can play “dirty” and use tariffs as a mechanism to disrupt the marketplace and cause severe trade imbalances. China is one culprit that has taken advantage of tariffs and caused major trade imbalances with the US (and many other global trading partners).
So how does this affect you? Once higher tariffs take effect, you can see prices for some items increase. However, that doesn’t mean that every item in that category will increase. For example, if the price for ABC peanut butter increases because of tariffs, then all you have to do is buy XYZ peanut butter that has no tariff and is manufactured in the U.S. The same is true across the board which is why you will probably see very little personal spending increases as people just switch their buying habits and company’s just switch their manufacturing to the U.S., or somewhere else in the world.
Obviously, it’s in the best interest for all involved for countries to to work out fair trade, and for the most part they do. The U.S. is a very large trading partner and usually under very strong leadership it has the upper hand and can structure a fair-trade deal. Having said that, the talks can drag on which can cause stock market pressures, especially to some companies that have a high exposure to China.
If you are retired or getting close to it, you shouldn’t be dependent on the HOPE of good market performance for your success or income. Sequence of return risk is a daily risk that will erode your income and portfolio due to daily volatility. Although, trade war hysterics are not warranted, your plan should always be structured to provide you with a reliable income stream with minimal effect from any geo-political conflicts.