According to the Peterson Institute for International Economics, tariffs on Canada and Mexico
(25%) and additional tariffs on China (10%) would likely lower GDP and increase inflation. So
stagflation seems like a valid concern for the latest flurry of tariffs and tariff threats out of the
second Trump administration. And at first pass, one would expect stagflation to be negative for
equities, but take a look at the following piece from Dimensional Fund Advisors. The results are
surprising.
For those that are interested in a deeper dive on tariffs, please take a look at this video with
insights from a trade policy expert: Tariff Tensions: Insights from Professor Douglas Irwin |
Dimensional. And, if you really want to get in the weeds, check out the myriad of work done recently by economists at the Peterson Institute (www.piie.com). But remember stock prices
reflect this type of analysis very quickly and as new information comes to light, it too will be
incorporated into share prices.
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