Michael Ashley Schulman, partner and Chief Investment Officer at Running Point Capital Advisors, offers a nuanced perspective on the economic impact of reciprocal tariffs. Rather than viewing tariffs as long-term inflationary forces, Schulman frames them as one-time price shocks that ripple through industries in distinct ways.

With deep expertise in wealth management, portfolio structuring, and financial market analysis, Schulman advises high-net-worth families and registered investment advisors on risk assessment and strategic planning. A Chartered Financial Analyst (CFA), he frequently speaks at investment conferences, dissecting macroeconomic trends, market dynamics, and trade policy.

In this discussion, Schulman explores tariffs as both a strategic tool and a double-edged sword—capable of fostering domestic self-sufficiency while potentially stifling competition and innovation over time. Citing China’s response to AI chip restrictions, he underscores how tariffs can shape trade negotiations and economic strategy. He also highlights the market’s ability to adapt within one to four quarters, advising investors to position themselves either long or short in specific sectors based on risk tolerance.

Ultimately, Schulman situates tariffs within the broader framework of economic policy, trade balances, and global market stability—where every action risks provoking an equal and opposite reaction on the world stage.

Scott Douglas Jacobsen: With President Donald Trump poised to impose tariffs across the board on several countries—and the likelihood of reciprocal tariffs in response—how would you advise your clients to navigate this evolving economic landscape?

Michael Ashley Schulman: The reality is that even with the promise of reciprocal tariffs being enacted, they probably won’t affect the prices of goods already in the U.S.—in stores and inventory—so the retail and commercial price adjustments may still be a month or several months away.

We advise our clients to remember that tariffs typically represent a one-time adjustment to pricing and are only one of many factors influencing corporate economics, employment, stocks, and asset prices.

While common rhetoric suggests tariffs are inflationary, technically they are import taxes paid by the purchaser, and like other taxes, tend to be deflationary rather than inflationary.

Overall, reciprocal tariff expectations remain a wildcard, and it may be premature to predict specifically where and how they’ll impact markets. Although their effects may be identifiable, the Trump administration may be leveraging them primarily as a negotiation tactic.

The advantage of reciprocal tariffs versus arbitrary ones is that they immediately provide other countries with clear parameters for negotiation.

From an economic perspective, entertainment, travel, and service companies may be less affected by tariffs, potentially offering greater stability in uncertain times.

The U.S. economy’s unique positioning and robust fundamentals point to steady growth, albeit with elevated risks and a challenging investment landscape. Additionally, we anticipate AI technologies helping to address the growing pains of a transitioning labor force, as developments like self-driving vehicles may require Uber and Lyft drivers to find new opportunities within the evolving gig economy.

Recognizing that tariffs can function both as a constraint on business growth and a catalyst for structural change, institutional investors with a genuinely long-term perspective should consider investing in resilient industries affected by tariffs.

This approach may allow them to acquire assets at favorable valuations, particularly since tariffs typically represent a one-time adjustment to price levels rather than ongoing costs. Excessive fears about tariffs could present attractive buying opportunities, especially in high-demand industries.

Jacobsen: How do reciprocal tariffs differ from traditional tariffs regarding their economic impact on bilateral trade?

Schulman: It depends. How do they differ? Both are tariffs, and economically speaking, a tariff is a tax. When people hear “tariffs,” most assume they are inflationary and will drive up prices. However, there are nuances to consider.

Tariffs create a one-time price increase, whereas inflation tends to be continuous. For instance, a 5% inflation rate means prices rise by 5% yearly, compounding over time. In contrast, tariffs impose a single price adjustment.

Because tariffs function as a tax, they do not necessarily cause ongoing inflation. If a government increases taxes, consumers have less disposable income, which can reduce spending — a deflationary effect. From a macroeconomic perspective, tariffs act as a deflationary measure when viewed as a tax. Even when considering their price impact, tariffs result in a one-time price increase rather than persistent inflation. Additionally, tariffs often drive changes in consumer behaviour — people may seek cheaper substitutes, alternative suppliers, or reduce consumption.

For example, if a 10% tariff is imposed on imported goods, prices will rise, but not uniformly. Some consumers will switch to domestic products, others may find alternative international suppliers, and some will buy less overall. Traditional tariffs are unilateral and imposed without necessarily targeting another country’s policies. Reciprocal tariffs, however, are imposed in response to a tariff from another country. This dynamic makes reciprocal tariffs a negotiation tool, as they explicitly target specific economic sectors or industries in the retaliating nation.

Jacobsen: When it comes to reciprocal tariffs—often seen as retaliatory trade measures from other nations—do they pose a significant economic reality, or is the threat of such countermeasures largely overstated?

Schulman: It is a reality. Reciprocal tariffs, by definition, are retaliatory. Whether the initial tariff was intended as a protective measure or an economic bargaining tool, the affected country typically perceives it as an offensive move. Even if a tariff is not explicitly labelled as reciprocal, any unilateral tariff can trigger retaliatory action from trading partners. This is a fundamental aspect of trade wars, where nations escalate tariffs and counter-tariffs, leading to disruptions in global trade, supply chains, and market stability.

If a tariff is well thought out—if imposed to protect a nascent industry or for a specific economic reason, such as safeguarding certain employees or sectors—the other country may understand the rationale. It becomes part of any negotiation. However, if tariffs are imposed willy-nilly, the other side may be taken aback.

Then, the key question becomes: Is this truly a tariff, or is the administration using it as a negotiating stance? Is there something else they want in exchange for removing the tariff? Do they want better border enforcement, stricter drug enforcement, or reductions in long-standing tariffs that have been in place for five or ten years but may no longer be necessary? Understanding the reasoning behind a tariff is crucial. It is always important to assess whether the tariff is purely retaliatory, tit-for-tat, or whether it serves as leverage to negotiate something else.

Jacobsen: It gets the other party’s attention and can bring them to the negotiating table — if that is the intent.

Schulman: It gets the other side’s attention and can either bring them to the negotiating table or provoke a reaction.

Jacobsen: How do nations typically respond when a tariff is imposed without a clear objective?

Schulman: If a tariff is imposed without any intent to negotiate, the reaction from the affected country is often aggressive and defensive, and it may be perceived as an insult or threat. We see this with Canada’s response to some of the tariffs imposed by the Trump administration. Traditionally, the U.S. and Canada have had a strong economic relationship — we are neighbours, rely on each other, and are allies. However, when a tariff appears unjustified or imposed for its own sake, it creates an adverse reaction and puts the other country in a hostile and defensive posture. The affected country may view it as a punitive action rather than a bargaining tool, making retaliatory tariffs, trade barriers, or restrictions more likely.

Typically, the goal is to avoid a trade war. You do not want both sides escalating tariffs because, as I said earlier, tariffs function as taxes. If both sides increase tariffs, both sides will effectively raise taxes on their economies, which is harmful. It hurts growth and creates economic inefficiencies. Additionally, tariffs have broader consequences for businesses and supply chains. They can disrupt global supply networks, increase production costs, drive up consumer prices, and introduce volatility into financial markets. These uncertainties make long-term planning difficult for corporations and investors alike.

Jacobsen: How might reciprocal tariffs influence employment and consumer prices?

Schulman: The key impact is restraint — raising input costs while reducing demand. The effects will vary across industries depending on how they intersect with global supply chains. Manufacturing industries that rely heavily on imported components, such as electronics and automobiles, may face higher production costs, reduced competitiveness, and potential price increases for consumers. This could also lead to a slowdown in productivity.

On the other hand, service-based industries — such as entertainment, hospitality, restaurants, amusement parks, and travel — tend to be less affected by tariffs because they do not rely on importing goods that would be subject to such measures. However, manufacturing, agriculture, technology, automotive, and retail industries are more likely to be impacted due to rising costs.

For businesses, these increased costs usually result in one of two outcomes: either companies absorb the higher costs, which reduces their profit margins and valuations, or they pass the costs onto consumers through higher prices, reducing demand. If demand decreases and sales decline, business valuations still take a hit. However, restrictions on imports create market opportunities for domestic substitutes.

As I mentioned earlier, tariffs typically have a one-time economic impact. The market usually adapts over time. Most negative effects are short-lived, and businesses eventually adjust to the new price levels.

Jacobsen: How do multinational corporations adapt to the complexities of global supply chain shifts? Even if their manufacturing is primarily based in one nation, what strategies do they employ to navigate these evolving economic landscapes?

Schulman: The classic MBA answer is: it depends. And that is an interesting question. Rather than speaking in theory, let me give you a real-world example.

Take Procter & Gamble, a massive American multinational specializing in consumer goods and household staples. While it is based in the U.S., many key ingredients, chemicals, and raw materials are imported from China and Mexico.

Conversely, some of Procter & Gamble’s competitors — Nestlé and Unilever, both foreign companies — produce much of what they sell within the U.S. rather than importing it. As a result, tariffs may negatively impact Procter & Gamble more than Nestlé and Unilever, despite all three companies operating in the same consumer goods space. Since Nestlé and Unilever source more of their goods domestically than one might expect, they are less exposed to tariffs.

Meanwhile, Procter & Gamble relies more heavily on imported ingredients and chemicals, making them more vulnerable to tariff-related cost increases.

Jacobsen: How long does it take for the market to adjust? You mentioned that these effects are typically short-term bumps — what does that look like in practical terms?

Schulman: The timeline for market adjustment depends on several factors — how clearly defined the tariffs are, when they take effect, what industries they impact, and how large the tariff amounts are. Once those factors are clear, the market can begin adjusting. However, if tariffs are uncertain — for example if retaliatory tariffs are announced but it is unclear which industries will be targeted — that delays market reactions.

This uncertainty forces companies to make short-term strategic decisions, such as stockpiling inventory or delaying product launches until tariff policies are clarified. This can cause economic adjustments to stretch over several quarters, sometimes up to seven quarters. However, businesses can adapt more efficiently once tariffs are announced and implemented. At that point, corporate management can navigate the new conditions, and most adjustments take place within one to four quarters, depending on supply chain flexibility.

Even if companies shift their manufacturing strategies, prices often stabilize when those changes take effect. As a result, from a market reaction and economic impact perspective, most tariff-related adjustments occur within the first one to four quarters.

Jacobsen: How should institutional and retail investors adjust their portfolios to capitalize on opportunities or mitigate risks related to tariffs?

Schulman: It depends on how aggressive the portfolio strategy is. If investors are risk-averse, they may want to exit industries that tariffs, such as manufacturing, agriculture, or retail, could significantly impact. However, this approach involves a degree of speculation since it is never entirely clear whether tariffs will be implemented or are merely a negotiation tactic.

On the other hand, if investors are aggressive, they might buy into industries most affected by tariffs — such as manufacturing, agriculture, or retail — anticipating that market fear will drive prices down, creating attractive entry points. This strategy is based on the idea that eventually, market conditions will correct, and the initial fear-driven selloff will subside.

From an investment standpoint, the right strategy depends on whether someone is highly aggressive or conservative. However, to some extent, investing during tariff uncertainty remains a guessing game — investors do not always know what will be announced or how severe the tariff levels will be.

Jacobsen: To what extent can tariffs influence domestic innovation? Is that a factor that could be considered when implementing tariffs?

Schulman: Innovation is difficult to predict. You could argue that tariffs spur innovation. That is what we have seen in China with DeepSeek AI. It was not exactly a tariff but an outright restriction on selling advanced AI chips to China. As a result, China developed what appears to be a brilliant and less expensive workaround — which DeepSeek is now proving to be successful.

Tariffs, at their core, function as a tax or a restriction. I am repeating myself on the tax aspect, but fundamentally, tariffs act as barriers. Restrictions can accelerate innovation rather than slow it down. The assumption behind restricting AI chips to China was to hinder their progress — that was the intent of the U.S. government. However, in practice, it has fueled innovation instead. In this sense, tariffs and restrictions can be a catalyst for substitutes and workarounds.

That said, tariffs that shield domestic industries can also reduce competitive pressures, and competition is a major driver of innovation. Governments sometimes impose tariffs to protect and nurture an industry, but companies become complacent if these protections remain too long. Without the challenge of foreign competition, firms may feel less urgency to invest in R&D, leading to slower technological progress.

In short, tariffs can work well as temporary protection, giving companies the breathing room to make long-term investments. However, historically, reduced competition over time tends to stifle innovation, ultimately making industries less competitive in the global market.

Jacobsen: What is the role of tariffs in shaping domestic economic policy?

Schulman: Tariffs are primarily used to protect or incubate and nurture emerging industries by influencing trade relationships. They can encourage economic self-sufficiency in key sectors, such as agriculture, manufacturing, or technology. That is one way they shape domestic economic policy.

Additionally, tariffs can offset trade imbalances, protect jobs, and support domestic producers. Politically, these measures often help win votes since protecting local industries resonates with voters and policymakers alike. However, the long-term consequences of tariffs include higher consumer prices, reduced market competition, strained diplomatic relations, and potential retaliatory tariffs from other nations. We may be seeing that unfold now.

Jacobsen: Michael, thank you very much for your time today. I appreciate it.

Schulman: Sure, happy to help, Scott. I will be in touch.