Introduction
The Trump Administration has been in office almost 60 days as of this writing. To some, he’s accomplished more than any other president in modern history in those 60 days. To others, he’s accomplished little more than abandoning longstanding allies and turning a blind eye to many American’s plights. No Trump “accomplishment” draws more praise or ire than his tariffs (or threats of tariffs) on friend and foe alike.
This is a brief discussion on the effect tariff’s may or may not have an annuities.
What are Tariffs?
According to Investopedia, tariffs are, “a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.” It would seem the Trump Administration would be targeting the last motive, “protect competitive advantages.” Trump has stated that he believes the US is being “ripped off” in regard to international trade. He would argue that he is fighting for fair and reciprocal trade on international markets.
However, tariffs are not enacted in a political or economic vacuum. There are real costs associated with tariffs. The primary being the increased costs for consumers in the countries where tariffs are in place.
What does this mean for annuity providers?
The most direct issue for annuity providers would be the increased overhead. Any cost increases due to tariffs on goods or services an annuity provider may typically purchase, could be passed on to the consumer in the form of higher premiums.
The other more consequential change would be the possible adjustment of annuity product offerings and interest rates due to economic responses caused by the tariffs.
What does this mean for annuity buyers?
For annuity buyers who currently have fixed rate annuities, any new tariffs should have little effect. However, anyone in the market for an annuity should be aware that as the market rides the tariff roller coaster, interest rates on different products will change or be subject to change. This will mostly be the case for variable rate annuities. This type of volatility may call for a fixed or fixed index annuity to hedge against any negative tariff effects.