Finding Optimism in Economic Uncertainty
- Christina McNeal
- Apr 4
- 8 min read
Perspective Matters
RECENT ECONOMIC SHOCK
This week brought significant economic news as President Trump announced sweeping tariffs of at least 10%—and often substantially higher—on virtually all imported goods entering the United States. This decision represents a dramatic shift in trade policy with far-reaching implications. Many Americans may not realize the extent to which our daily lives depend on imported products, from the food we eat to the vehicles we drive. Economists are already predicting immediate price increases across a wide range of consumer goods, from fresh produce in grocery stores to automobiles in showrooms across the country.
KEY TAKAWAYS
Economic adaptation is inevitable: While recent tariff announcements may trigger a recession, trading partners are already adapting by seeking new markets and relationships.
History proves our resilience: Throughout economic disruptions, humans have consistently demonstrated the ability to adapt and eventually thrive under new circumstances.
Preparation creates security: Building cash reserves, reviewing investments, and postponing major purchases now can help you weather potential economic challenges in 2025.
A CONFESSION OF OPTIMISM
Let me start this month with a confession: I am, at heart, truly an optimist. Throughout history people have adapted to their changing environment and found ways to thrive under new circumstances. That doesn't mean I'm blind to risks, perils, and pain; it means that my faith in the human spirit to overcome adversity is stronger than my fear that we will collapse under it.
As markets are attempting to digest the surprise announcement of the extraordinary and unprecedented levels of tariffs announced by the Trump administration this week, it's challenging to find a silver lining in the cloud hanging over capital markets. I do see opportunity though, and it may not be coming from a place you'd expect.
HISTORICAL CONTEXT: A SHIFT IN TRADE PHILOSOPHY
President Trump has made no secret of his belief in using tariffs to try to compel trading partners to strike more favorable trade deals for the US. Throughout his career he has used his position of power and dominance to improve his own financial situation. His business ventures have included raising capital from investors and ultimately running businesses into bankruptcy after extracting value for himself. He is known for refusing to pay small businesses he hires to do work for him, relying on his ability to survive a war of attrition to force them to settle for payments much smaller than the original contracted amount. His latest examples of self-promotion and extracting value for himself in the crypto world are stunning in their audacity, even for those of us in New York who are well familiar with his tactics. His success at growing his own personal wealth may have created misperceptions about his ability to manage sustainable businesses and complex economic systems.
Since World War II, the US has led the way in facilitating global trade, raising gross domestic production levels in many countries worldwide. Not all citizens of every country have benefited equally, but that's a different conversation. The US successfully promoted the concept that reducing friction in the movement of goods and services would expand the global economic pie, benefiting everyone. This strategy has stimulated innovation and brought down costs for consumers in the United States more dramatically than anybody could have imagined 50 years ago. That era has now come to an end.
ADAPTING TO A NEW ECONOMIC REALITY
From my perspective, the biggest risk is not that this era has come to an end, but that we may fail to recognize that things have changed. That doesn't mean I am happy to see this post WWII era of prosperity come to an end, but history reminds us that it was inevitable.
My optimism stems from our trading partners clearly recognizing that their relationship with the United States has permanently changed from what it was for the past 70 years. If they did not recognize that they would be ceding power to this administration in a way that would be incredibly damaging to all of us in the long term as well as the short term. Instead, they accept the reality of the situation and are pivoting themselves to a new reality. That's where the opportunity appears.
UNDERSTANDING THE ECONOMIC IMPACT
Recessions are typically caused by supply shocks. The tariffs announced this week by the Trump administration are going to create supply shocks even if half of them have been rescinded by the time you read this post. Trading partners will no longer rely on contracts with U.S. companies due to the current administration's arbitrary and capricious use of tariff power to extract trade concessions. This reality will result in trading partners reducing their exposure to this risk by seeking other trading partners and markets for their goods.
Pivoting to new trading partners and markets cannot happen overnight, so we are likely to experience a recession during this period of transition. Because our trading partners accept the reality of the situation and act accordingly, in their own best interests, there is an opportunity to reallocate capital. It is too soon to know who is on the list of ultimate beneficiaries of these pivots, but we will know soon enough as other countries take actions to support their businesses in seeking contracts that used to be given to U.S. companies. I read the other day that a US company that had been working on a deal to distribute its goods in Canada (which happen to be diapers and baby wipes) has seen that deal sidelined in the face of growing anti-American sentiment among Canadian consumers, and a Canadian company has seen a surge in new orders. (Read more here)
THE HISTORICAL RESILIENCE OF HUMANITY
We human beings are quite resilient. We ultimately adapt to changing environments and find ways to thrive. It's unfortunate, in my opinion, that we continue to fail to heed the warning signs of a potentially painful change that is well telegraphed, but that failure is nothing new in human history. Every time we go through a cycle like this some people see the early warning signs and try to warn others but are dismissed as overreacting. Eventually it becomes impossible to avoid the reality that things have changed and while there is much handwringing and recrimination, there is also opportunity; we always rise to the occasion through adaptation, and we will again.
Throughout history, we've seen similar patterns of economic adjustment. For example, during the 1970s oil crisis, when OPEC's oil embargo created massive supply shocks, many Western economies were forced to adapt. This painful transition ultimately led to greater energy efficiency, exploration of alternative energy sources, and economic diversification in many countries.
KEY PERIODS AND INNOVATIONS
Great Depression (1929–1939):
Economic Context: A global economic downturn marked by a 25% unemployment rate in the U.S. and a 29% drop in real GDP15.
Innovations/Adaptations:
Post-WWII Boom (1945–1960):
1970s Stagflation (1970–1980):
Economic Context: Characterized by high inflation, unemployment, and stagnant growth due to factors like the oil crisis and policy challenges37.
2008 Financial Crisis (2008–2009):
PRACTICAL FINANCIAL PLANNING IN UNCERTAIN TIMES
As financial planners, we try to anticipate a list of risks to your plans and work with you to develop strategies to address each of those risks. Most of the events that derail our plans are things we never anticipated, but it is an important exercise nonetheless because it prepares us to react – or not – when things change. We talk about having enough cash reserves to cover 2 - 3 years of necessary expenses because that's how long it can take an economy to adjust to a changing environment and get back to growing. We talk about having a diversified portfolio across asset classes, geographies, company size and style, as well as Developed versus Emerging because change is the only constant, and it often comes as a shock.
STEPS TO TAKE NOW
Like many others, I see an increased risk of recession in 2025. Now is the time to look at your finances and assess how prepared you are for what could be a difficult year financially.
Build your emergency fund: Aim to have six months of salary in a savings account in case you lose your job.
Review your retirement withdrawals: If you are retired and using investment withdrawals to maintain your lifestyle, check your portfolio allocation to ensure you can support your needs for the next couple of years without disrupting long-term investments.
Reconsider major purchases: If you are planning large purchases in the next couple of years and expect to use money that's in your savings or investment accounts, either consider postponing those purchases or make sure that money is not at risk.
Prepare for market volatility: If we're entering a recession, we won't know for several months, and by that time, the stock market will likely be at least 10% lower than it was before the tariff's announcement.
Distinguish between correction and recession: This could be a correction, in which case within six months we should be back up to where we were, but in case it's not, now's the time to assess how prepared you are to get through the next 12 to 18 months.
Adjust your spending habits: Consider postponing large purchases or cutting back on unnecessary expenses in order to build your cash reserves.
CONCLUSION: CONFIDENCE IN OUR ADAPTABILITY
As frightening as the headlines may be, if you are prepared financially you can ride this out and markets will adapt. Countries and companies will pivot and find new markets and new trading partners. History teaches us that human beings are incredibly resilient, and I am confident this time will not be any different.
Similar examples of economic resilience can be seen following the 2008 financial crisis. Despite the severe economic downturn, new industries emerged, businesses adapted their models, and economies eventually rebounded. Companies that focused on flexibility and innovation were often able to not just survive but thrive in the new economic landscape.
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