A Special Brief on the Tariff War

The latest on tariffs... 104% is a big number... Senators are asking questions... The tip of the iceberg... Our director of research's special brief on tariffs and unpredictable markets... 'Prepare, don't predict'...

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We'll start with the latest...

Today, we'll share a special tariff-related message from our Director of Research Matt Weinschenk for all Stansberry Research readers. But before we get to that, I (Corey McLaughlin) need to cover some of today's developments from the "Liberation Day" fallout.

The major U.S. stock indexes opened higher and appeared headed for a notable rebound, but a potential relief rally fizzled – and then some.

The benchmark S&P 500 Index closed 1.6% lower – roughly 5% less than its intraday high this morning – and the CBOE Volatility Index ("VIX") finished the day extremely high around 52...

Yesterday afternoon, Treasury Secretary Scott Bessent shared that dozens of countries have indicated they are willing to negotiate with the U.S. on tariffs, but that China "has chosen to isolate itself" with its retaliatory 34% tariff on Friday.

In response, tomorrow is when President Donald Trump promised to slap another 50% tariff on imports from the world's second-largest economy. That would bring the grand total of new tariffs on imports from China in 2025 to 104%...

And the newest 50% – set to go into effect at 12:01 a.m. tomorrow along with tariffs on 85 more nations – could conceivably set off another round of escalation in this trade war. China's commerce ministry has since said, according to a translation...

The U.S. threat to escalate tariffs on China is a mistake on top of a mistake. China will never accept it. If the U.S. insists on its own way, China will fight to the end.

Or... maybe not. Trump wrote on social media this morning...

China also wants to make a deal, badly, but they don't know how to get it started. We are waiting for their call. It will happen! GOD BLESS THE USA.

As we've shared over the past few weeks, further escalations – especially with China – could lead to more downturns for U.S. stocks. On the other hand, "less bad" news could provide a lift.

The thing is, as Matt will insightfully explain momentarily, it's nearly impossible to predict what comes next, or when. But you can take steps to prepare your portfolio for all the possible outcomes.

In the meantime, though, immediate consequences have emerged...

Here's perhaps the tip of an inflationary iceberg, as businesses are set to deal with substantially higher costs on U.S. imports in one way or another until further notice. From global news service Reuters today...

U.S. memory chipmaker Micron Technology has told U.S. customers it plans to impose a surcharge on some products from Wednesday to account for U.S. President Donald Trump's new tariffs, four sources familiar with the matter said.

Micron's overseas manufacturing sites are largely based in Asia, including China, Taiwan, Japan, Malaysia and Singapore.

The company notified its customers in a letter that while Trump's announcement last week exempted semiconductors, which account for part of Micron's portfolio, the tariffs applied to memory modules and solid-state drives (SSDs), the sources said.

Those products, used to store data in various products from cars to laptops and data center servers, would now be subject to a surcharge, they said.

Senators are asking questions now...

Shortly after we read that story today, I listened to U.S. trade representative Jamieson Greer – a member of Trump's Cabinet – testify in Congress before a panel of senators. Lawmakers from both sides of the aisle sought answers and clarifications on what to expect from trade policy.

Predictably, Greer was asked about the prospect of higher prices as a result of additional double-digit taxes on U.S. imports... And predictably, he deflected those concerns and instead pointed to Trump's stated long-term idea of reducing trade deficits.

"The trade deficit has been decades in the making and it's not going to be solved overnight," Greer said.

Like Bessent, he also said that Trump has indicated he's willing to negotiate – with 90 different nations in play, by Greer's count – but that "we don't have any particular timeline set... The outcome is more important."

And Greer replied directly to one senator, with an answer he didn't like... that he shouldn't expect to hear about many "exemptions" for particular industries or businesses, because that would take the effectiveness of the broader tariff policy away.

The major stock indexes, up by as much as 4% this morning, appeared to dip some on those comments... They later broke lower after a White House spokesperson said the additional tariffs on China would go ahead at midnight tonight, as Trump said they would.

All this said... I doubt that headline-driven volatility, fueled by developments from Washington, is going to disappear anytime soon. Trump and White House officials have reportedly had talks with Japanese and South Korean officials already.

Bessent said during a television interview yesterday that negotiations with other nations could last through June. So it's reasonable to expect related "good" or "bad" or "less bad" news until then, at least.

As we wrote yesterday, "Get used to this." Volatility – potentially in bullish and bearish directions – isn't going anywhere.

We'll get into more discussion tomorrow... But for more on the critical point about navigating this market today, here's Matt, our director of research, with an important message that he wants to share with all Stansberry Research readers...

A briefing on tariffs and unpredictable markets...

You already know the key points to the story.

On Wednesday, President Trump announced his plans for broad tariffs. The market crashed.

The story is still developing, but stocks fell about 10% by the end of Monday... the worst three-day drop since the pandemic crash in 2020.

We could recount how Trump has put a baseline of 10% tax on all imports and is adding further levies based on a calculation of his own design. But we suspect you've been following closely.

You can get the headline news anywhere.

We are here to help you protect your wealth... explain why this is a unique moment in markets... and try to look to what's next.

We haven't seen this before...

We haven't seen a market crash that was initiated entirely by choice. Most crashes result from the animal spirits in the market... and from the government's attempt to calm them.

The fact Trump could end this calamity in an instant with a Truth Social post makes it challenging for investors to know what to do.

Before we get into the politics, let me tell you where Stansberry Research stands.

We don't pick a side in partisan debates. If anything, we view our all political leaders with skepticism.

That said... viewed through the lens of markets... we believe the tariffs are bad for economic growth.

At Stansberry Research, we believe that free markets are the key to unlocking the greatest wealth for all.

Allowing individuals to pursue trade and profit leads to innovations and efficiencies no other system provides.

Trade barriers, taxes, undue regulations, occupational licensing, and industrial policy all get in the way of the human impulse to build, trade, create, and share.

Tariffs are a tax like any other. Taxes distort the most efficient use of capital and lead to what economics calls a "dead-weight loss."

Everyone ends up with less.

We're partial to a parable from Bill Bonner, longtime friend and partner of Stansberry Research. When the tariff news started, he wrote:

Imagine a town that tries to protect itself from competitors. Rather than freely trade with the shoe shop in a nearby-town, it demands a pay-off... It makes the same proposition to the car dealer in the next town over... and with the newspaper in the state capital. What do you think? Does this town get rich... or does it become a joke?

Trump and his team aren't joking. They argue that the tariffs will lead to long-term benefits after this short-term pain.

So far, the markets don't believe Trump...

They realize that people will end up with less... and that means slower growth or even recession.

Now, Trump's team has some legitimate gripes. Other countries do have trade barriers that treat us unfairly – particularly China.

The way the global economy works has saddled the United States with an extremely valuable currency. That sounds like a good thing, but it hampers our ability to export and leads to the financialization of our economy.

Correcting those issues would be good. The market might be amenable to such goals... if we pursued them with less chaos and more caution.

What's more, these tariffs are massive. Trump is not fiddling with the knobs of the economy to raise a little tax revenue or help domestic manufacturers.

At the size Trump announced on Wednesday, this is a wholesale reworking of the global economic system.

Tariffs, under the current arrangement, fall under the purview of the president. They don't take the approval of Congress, voters, or any other checks and balances meant to align the government to the will of its people.

That means we have come to a situation in which one single man is redesigning the global economy.

Our reading of history is that central planning has never worked. The best economy is one that builds itself from buyers choosing what they want and sellers delivering value.

We didn't like it when the Biden administration took a heavier hand in industrial policy by trying to guide which industries succeed and fail in the country.

And we don't like what is happening now.

Regardless of your politics... the story I've told is the one that the market is grappling with.

That's why you need to understand it...

The fact that the tariff decisions have come from the mind of one man also makes them difficult to predict.

Anticipating collective decisions can be easier. Investing involves trying to predict the purchasing behavior of a business's customers or the actions of market participants.

You won't get every one right. But given the law of averages, you can deal with this kind of uncertainty a little better.

Even looking at the beliefs of 535 members of Congress, you can average out their views to guess what bills they may pass.

That means if you decide to position your portfolio for a tariff world, it could all be unraveled if Trump cuts a deal and proves this all was a negotiating tactic. You'll miss a huge surge in the market.

On the other end, tariffs implemented at the level that has been announced will have major implications for the global economy.

That leaves us in a uniquely unpredictable situation...

Trump's mercurial nature and his willingness to walk back decisions has left markets stumped as to what will happen next.

When markets are stumped, they sell off.

While people can be predictable, you never know what a person will do.

Going forward, any number of things may happen with tariffs...

The tariffs may stay in place. Trump may cut deals with individual countries to lower them. Other countries may announce reciprocal-reciprocal tariffs, elevating the trade war and the market turmoil.

The market may fall further and lead Trump to reverse his stance. Congress may reassert power over tariffs.

At this point, no one knows.

But we do know how investors should react...

At Stansberry Research, we've always tried to remind our subscribers that markets do go down.

That's not to say we're always bearish. Stocks mostly go up, and we love buying them. Public stocks have been the greatest wealth-generation tools of all time.

But they don't go up without interruption.

Market declines of 10%, 15%, or 20% from their highs are common. On occasion, we see even more painful declines.

We've enjoyed an incredible bull market that started in 2009, with only a brief interruption during the pandemic.

That has left many investors overexposed. When markets offer no obstacles, investors tend to crank up their risk. They keep "buying the dip." They focus only on high-growth stocks with high valuations.

It's like driving a car. A bump in the road doesn't do much damage at the proper speed. But if the road is too smooth, the driver can pick up too much speed. Then a run-of-the-mill pothole becomes a real threat.

The cure for this is just prudent risk-taking...

You can't overload your portfolio with the hottest stocks. You need to own some "boring" companies along with those poised for growth.

The hardest-hit sectors since the market's peak on February 19 are information technology, consumer discretionary, and commercial services.

That's not because they are closely tied to tariffs... but because they were flying high in the bull market.

You need to diversify.

You need to remember that these drawdowns come and respect them by not getting overleveraged or overconcentrated.

If your portfolio only works when markets keep going straight up, it's going to have problems when it hits an inevitable drawdown. You are not likely to sidestep it through prediction.

That's also why we use sell stops. The specifics may vary by strategy, but over decades of experience, we've come to trust strategies based on stop losses.

Yes, sometimes, we begrudgingly sell a stock only to watch it rally. But often, stops get us out of investments that continue to falter. Over time, stops protect your capital.

When markets turn bearish, it's OK to stop out of some positions on the way down. Not only does it free up cash, but it gets you out before you take further, potentially catastrophic losses.

Then, when markets start to rise, our regular cadence of new recommendations means we'll put money to work starting at the bottom... and all the way up. (You've likely heard the arguments for "dollar-cost averaging" by putting money into the market each month.)

For now, we'll use Dan Ferris' line, "Prepare, don't predict."

For the reasons outlined above, no one has an edge in predicting the next moves of this market. It's entirely in Trump's hands.

Mind your stops. Own businesses you want to own no matter what the future looks like.

Our editors will keep you updated on the positions in your portfolios and are searching for new opportunities to profit in the future on a full-time basis.

We'll be here to help you understand what kind of economy we settle on over the course of this global debate.

New 52-week highs (as of 4/7/25): None.

In today's mailbag, feedback on yesterday's Digest and mail... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"As a follower of Extreme Value as well as several other letters, I normally maintain many open (stubbornly low) limit buys [an order to purchase stock at a specific price or lower] in my self-managed 401K. Friday 4/4, thirty of those bids were filled, leaving only one." – Subscriber John M.

"Trump has just shot himself in the foot – has he not heard of the Smoot-Hawley Tariff Act of 1930? It was debated in the House and passed in May 1929 before becoming law in June 1930. The Wall Street Crash of 1929 occurred in September of that year. Coincidence? I don't think so.

"U.S. imports decreased 66% from 1929 to 1933, and exports decreased 61%. Why would it work this time?" – Subscriber S.J.I.

"All the prognostications from your readers, essentially condemning Trump's tariff policies are premature. Why not wait until the real impact can be discerned? That may take a year, but the link between tariffs and the economy (including jobs) will be much more obvious and more accurate. Comparing the results from [President Herbert] Hoover's trade war that was instituted in the midst of an existing severe depression isn't apples to apples." – Subscriber Mike M.

All the best,

Corey McLaughlin and Matt Weinschenk
Baltimore, Maryland
April 8, 2025