On “Liberation Day,” President Donald Trump formally announced sweeping tariff plans, sending waves across global markets and raising alarm among economists and market strategists. The U.S. trade deficit of $918.4 billion in 2024, is a sharp reminder of the imbalances driving the current policy shift.
For registered investment advisors and wealth managers, the implications are profound. According to Bob Elliott, founder of Unlimited Funds and former Bridgewater executive, the full economic damage from these protectionist measures has yet to materialize—but the early signs are already damaging. He warns that Trump’s policy direction significantly raises the odds of a recession within the next year, driven by a combination of shrinking corporate margins, softening consumer demand, and accelerating job cuts in key sectors.
Tariffs are pushing volatility to new extremes, complicating portfolio construction and wealth preservation strategies. Advisors should be preparing clients now for a possible downturn.
Markets entered 2025 on a wave of optimism. Investor sentiment was high, driven by expectations of fresh tax cuts and deregulation under a second Trump administration. However, Elliott remained cautious, warning of a potential 20% market correction in early 2025. That downside risk is now growing. He believes the real danger lies in the structural weaknesses created by Trump’s trade policy.
One widely circulated theory on Wall Street is that Trump’s administration is front-loading tariffs to create fiscal space for an extension of the 2017 Tax Cuts and Jobs Act. The thinking goes that the short-term economic pain from tariffs could be offset later by pro-growth stimulus measures, including deregulation and more tax relief.
Elliott is not convinced. “It’s totally implausible that tariff-related income would be sufficient to offset the tax cuts,” he said in an interview with Business Insider. “The current scoring of the tax cut extension is about $5 trillion over the next 10 years. To cover that with tariffs, you’d need to implement extreme and economically damaging levels of duties.”
Trump claims his tariffs would raise $6 trillion over a decade. But Phillip Magness, economic historian and Senior Fellow at the Independent Institute, says those estimates don’t hold up under scrutiny. “Trump’s projection assumes imports stay constant, which is unrealistic. As tariffs rise, import volume will fall, and that means less revenue. Realistically, the government might collect only half of what’s being promised,” Magness said.
The idea that tax cuts could neutralize the economic damage from tariffs is also flawed, Elliott argues. Even if the revenue projections were accurate, and even if the Tax Cuts and Jobs Act were extended in full, the stimulative effect would be underwhelming. “At this point in the cycle, tax cuts won’t be enough to revive growth or avoid recession,” Elliott said.
For wealth advisors, the message is clear: the risk environment is shifting quickly. Advisors should be revisiting client allocations, emphasizing downside protection, and preparing for a market environment that may be driven more by political decisions than by economic fundamentals. The combination of fiscal uncertainty, trade policy missteps, and weakening consumer sentiment poses a serious challenge to portfolio stability in the year ahead.
