Hi, everyone. I'm Liz Ann Sonders, and this is the February Market Snapshot. On this short video, I'll attempt to tackle the topic of tariffs, knowing full well that even in the mere day between this taping and its publication, things could change. This topic is the ultimate moving target.

[High/low chart for Hello 1940s-level tariffs for U.S. weighted average tariff rate is displayed]

And before this past weekend's Executive Order, here's where tariffs stood overall. On February 1^st, President Trump announced the imposition of new 25% tariffs on imports from Canada, Mexico, and an additional 10 percentage points on imports from China. These tariffs were set to take effect on February 4^th, before delays were announced for the tariffs on imports from Mexico and Canada. As of now, the tariffs on imports from China are in place. 

Now, per the Executive Order, the announced tariffs, if they take effect, would impact $1.3 trillion in trade, representing 43% of US imports. That's based on 2023 data. And it would be close to about 5% of US gross domestic product, or GDP. 

[High/low chart for "Trump 2.0 proposals" is displayed]

As shown here, the action would raise the average US tariff rate from its current level of about 3% to 10.7%. Assuming they go through, it would likely put downward pressure on economic growth and upward pressure on inflation, all else equal. The hit to Canada and Mexico in terms of their economies would likely be significantly larger. 

[High/low chart for Hello again trade policy uncertainty for U.S. Trade Policy Uncertainty Index is displayed]

Perhaps no surprise here, there has been a significant spike in the US Trade Policy Uncertainty Index on which we'll be keeping a close eye. 

Now, before getting to the meat of the implications associated with these new tariffs, let's get what should be mundane, but surprisingly isn't, out of the way. There is shorthand often used to describe tariffs, including headlines, like 'Tariffs on…,' fill in the blank in terms of the country. But tariffs are essentially a tax imposed on foreign-made products, but paid by the importing business to its home country's government. Who ultimately bears the cost, of course, is dependent on a host of factors, including retaliations, exchange rate moves, companies' pricing power, and price elasticities. 

If fully implemented, the Federal Reserve estimates that tariff impacts could put downward pressure on US growth and upward pressure on US inflation. For Canada and Mexico, it could mean a quick move into recession territory, because of 14% and 16%, respectively, of their GDPs is directly dependent on exports of goods to the United States. Now, the respective hits to their economies is probably why both countries' leaders quickly stepped up to the negotiating plate, leading to the aforementioned delays. In the case of China, it's estimated that only 2.3% of its GDP is at risk. 

Now, most of the focus of tariffs' impact tends to be about US importers. Again, they're the ones paying the tariffs. But US exporters are at risk too, in particular, due to the aforementioned retaliation plans. It's estimated that about 2-1/2% of US GDP is directly exposed to goods' exports to those three countries, again, Canada, Mexico, and China. The export-related impact on the US economy may be somewhat muted, but certain sectors would obviously feel the pain more acutely.

[High/low chart for Trade deficit widens in advance of tariffs for U.S. goods trade balance is displayed]

Now, not unique to this most recent trade dispute is President Trump's dislike of trade deficits. He's often expressed a desire to see a closing of the gap between the United States and other countries. There are several realistic difficulties associated with that, though, not least being the fact that the United States is a net importer. We have had a trade deficit for decades, and it widened to a record at the end of 2024. 

[High/low chart for Trade diversion from China to Mexico for U.S. trade balance with Mexico + Canada and China is displayed]

Shown here are the trade balances the United States has with Mexico and Canada combined, as well as China. Both series are in negative territory because US imports from these countries are greater than US exports to them. 

[Arrows displayed for Mexico + Canada and China]

Now, while the US deficit with China has shrunk over the past five years, the US deficit with Canada and Mexico has widened considerably over the same timeframe. In fact, although the 2018 to 2019 trade war did lead to a reduction in the United States reliance on China in terms of imported goods, it really just shifted import demand to other countries. The United States status as a net importer overall did not change. 

[High/low chart for 2018-19 tariffs did bite for PCE Core Goods Price Index is displayed]

Now, per the 2018 experience, inflation did not flare up during the trade war. Indeed, broad measures of inflation remained contained. 

[High/low chart for PCE Price Index: across nine tariff-impacted categories is displayed]

That said, not only were the background conditions quite different in 2018 versus today, the tariffs in 2018 were significantly lower, and more targeted relative to the present batch. In fact, there was an inflation impact on those goods on which tariffs were placed in 2018, as you can see here. It just wasn't enough to impact the broadest measures of inflation. 

[Table for Canada: energy…Mexico: autos/machinery for Top U.S. import categories from Canada and Mexico is displayed]

Next, we have a couple of handy tables for those interested in product-level detail with regard to imports from Canada, Mexico, and China. The largest share of our imports from Canada are energy-related and auto-related, while the largest share of our imports from Mexico are auto-related, machinery, and electronics. 

[Combined total of top U.S. import categories from Canada and Mexico is displayed]

The totals between the two are in the last column here, which is how we sorted the list of goods. 

[Table for China: smartphones/laptops/toys for Largest categories of U.S. imports from China with no current tariffs is displayed]

Moving on to China, perhaps no surprise is the large percentage of our imports from China falling into the smartphones and laptops' categories, with toys accounting for a meaningful share as well. 

[High/low chart for Mag7: a China problem for Estimated Mag7 revenue exposure to China, Canada and Mexico is displayed]

I want to get a little more specific next and focus on the Magnificent 7 group of stocks, which are always of keen interest to investors. Shown here is the percentage of each company's revenues that are exposed to the three countries. Now, the weight is negligible in terms of Mexico. That's why you don't see any height in the bars. And only noticeable in terms of Canada with Meta's exposure. The group's exposure to China is much more significant, with Tesla topping the list. But Amazon and Alphabet have much lower exposure, a little more domestic- and services-oriented. 

[List of Takeaways is displayed]

So let's sum things up based on what we know now. US stocks initially sold off on the tariff news, but found their footing once delays were announced. Even before this tariff-related volatility, our view coming into this year was that sector and even industry volatility would likely remain elevated. We have no unique clarity about how this will all play out, but I think it's a no-brainer to expect that bouts of volatility, weakness, relief rallies are likely to persist. It is a difficult market backdrop to navigate, so stay disciplined around long-term goals and strategies. And thanks as always for tuning in.

[Disclosures and Definitions are displayed]