Video: Will Tariffs Impede Innovative Growth?
We believe innovative products and services will continue to grow despite economic volatility and tariffs. Market Strategist Brad Neuman explains using his AI avatar.
AI Brad Neuman: The announced sweeping new tariffs were worse than expected and may likely have negative implications for the economy. In the short-term, these tariffs raise prices which should lower real demand. Additionally, the tariff increase is in excess of 2% of GDP which could hurt economic growth by a similar amount.
That said, in Alger’s view, there are some mitigating factors. USMCA compliant goods from Canada and Mexico will be exempt from tariffs which represent a significant portion of U.S. imports. Additionally, semiconductors, pharmaceuticals, copper, and lumber are exempt for now. Furthermore, these tariff rates are likely to come down in the future with bilateral negotiations. Lastly, the new tariffs help raise significant revenue, over $600 billion per year, which may allow for larger tax cuts for corporations and individuals that could mitigate the overall economic impact.
From Alger’s perspective, we believe innovative products and services will continue to grow despite economic volatility and tariffs in particular. Historically, we have seen PCs grow through the early 1990s recession, internet advertising and e-commerce grow through the Global Financial Crisis, and enterprise software grow through COVID.
Even in the aftermath of the Smoot-Hawley Tariff Act in 1930, when the U.S. weighted average tariff rate rose significantly to approximately 20%, cutting-edge products continued to grow domestically, and their exports flourished around the world. Radio, for example, was a terrific new source of entertainment and news, and in the 1930s, U.S. radio exports doubled. Also in the 1930’s, U.S. aircraft exports surged over 40-fold, despite the implementation of tariffs and strategic controls.
In that spirit of innovation growing through macroeconomic headwinds, we believe today’s AI mega-theme will continue to grow strongly. These tariff announcements also provide a large tailwind to those involved with domestic construction and domestic manufacturing.
At Alger, we have invested through eight recessions and countless more growth scares throughout our more than 60-year history. And we have found that growth stock earnings have historically fared much better than value stock earnings in recessions.
Based on this history and our analysis, we believe that whatever economic environment unfolds, growth stocks will have superior fundamentals relative to the broader stock market. We believe those fundamentals should ultimately translate into strong long-term performance.
This video uses an AI generated avatar and was created using AI generative technology. As a result, it is not an exact replication of the speaker. The video content, however, was created by Alger.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of April 2025. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology. Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks. There will be winners and losers that emerge, and investors need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.
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