In April 2025, April showers were more like April thunderstorms in the markets. It was a wild ride, with the markets bouncing up and down for the entire month.
On April 2nd, President Trump announced “liberation day” tariffs against nearly all U.S. trading partners. The next day, stocks took a plunge as market participants reacted to the announcement. Stocks marked their worst performance since early in the COVID pandemic. The Dow Jones Industrial Average (DJIA) fell nearly 1,700 points, a decline of 4 percent; the S&P 500 dropped 4.8 percent; and the tech-heavy Nasdaq Composite declined 6 percent. On April 4th, China announced retaliatory tariffs, and the markets experienced another downturn. The S&P 500 declined 6 percent, the Nasdaq dropped 5.8 percent and the DJIA fell 2,231 points.
The ups and downs continued, and then on April 9th, President Trump announced he would pause tariffs for 90 days, except for those on China. As a result, stocks ended the day with record one-day point gains. The Dow ends more than 2,900 points higher, Nasdaq jumped 12 percent and the S&P 500 rose 9.5 percent.
So, what caused those storms? What sent the markets downward? As always, many factors contributed, but a primary cause was uncertainty. In general, the markets do not do well when uncertainty abounds. In the case of tariffs, economists and investors worried that the tariffs would raise prices, create a shortage of goods and lead to a recession.
Tariffs could help reduce the national debt
Now, I want to share with you my perspective on these wild market fluctuations and on tariffs. Let’s forget the politics for a minute and focus on the facts. A lot of people are talking about how tariffs could affect the economy, but few are discussing why the president is looking to impose tariffs in the first place.
Tariffs are a source of revenue that could help reduce the federal debt, which is out of control. This is something that should concern every American. As of April 3rd, 2025, the gross national debt was $36.22 trillion. That’s $1.61 trillion higher than one year ago and $12.31 trillion higher than five years ago.
As you can imagine, the interest the U.S. government is paying on that debt is astronomical. In fact, interest costs so far in FY25 are the second-largest spending category for the federal government — exceeding the outlays for all budget functions except for Social Security. Here are the Congressional Budget Office’s (CBO’s) major spending categories in the FY25 federal budget, from the highest to the lowest:
- Social Security $775 billion
- Net interest on the national debt $489 billion
- Medicare $469 billion
- National defense $466 billion
- Income security $383 billion
- Medicaid $320 billion
- Veterans’ benefits and services $185 billion
This national debt is not sustainable. It’s a financial cancer. It’s working against us, and the prognosis is getting pretty serious.
Even if we exclude interest costs, the federal government spends more money than it collects. We are borrowing too much money. The more we spend on interest, the less money we have to pay down the debt or to support needed programs.
The CBO reports that in the first half of FY 2025, the United States government has already borrowed $1.3 trillion, with $599 billion borrowed from January through March alone. That’s $44 billion more than we borrowed over the same period in 2024, and we’ve already spent $140 billion more in the first three months of 2025 as we did in 2024.
That’s one heck of a line of credit! Tariffs could help change that equation.
According to the University of Pennsylvania’s Penn Wharton, as of April 8th, 2025, President Trump’s tariff plan was projected to raise more than $5.2 trillion in revenue over 10 years to reduce the federal debt, which would then encourage private investment.
Governments and individuals have similar fiscal responsibilities
We don’t know the details about these tariffs, and we don’t know how it will all play out. Will those countries pay the tariffs? Will they impose retaliatory tariffs? If they do, will the costs trickle down to corporations? To consumers? Or will the tariffs bring in so much revenue to this country that, as President Trump suggests, the government can eliminate income tax for Americans earning less than $200,000 per year?
Time will tell. By April 27th, the U.S. government had collected $15.9 billion in tariff revenue (with three days left in the month), compared to $9.6 billion in all of March.
Whatever happens, we must reduce spending or bring in more revenue.
This is true with our own personal finances as well. We all need to be good stewards of our money. This means we need to strike a balance between supporting our needs now and in the future, while also factoring inflation into our plans and planning for unexpected expenses.
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I want you to know that we are paying attention to all the moving parts that contribute to the financial health of this country and of our individual clients. We are here to help put all these factors into perspective and to guide you through all the uncertainty. As always, investing requires a long-term focus. When we design your financial plan, we look far into the future, beyond any current economic or political climate. By having sufficient money set aside as a reserve, we can make sure you never have to sell stocks when the markets are down.
By planning in advance for future needs, we don’t have to react during market fluctuations; in fact, we can take advantage of them. If your financial advisor is not helping you with that, or if your advisor is allowing you to react to these uncertainties, I invite you to have a conversation with us.
Written by Tyson Ray, FORM Wealth Advisors | CFP®, CExP®, CIMA®
