Economic headlines are buzzing once again with news about tariffs, reigniting discussions about global trade policies and their ripple effects on markets. For investors, this raises an important question: How will tariffs impact portfolios, and what steps can be taken to navigate this economic uncertainty?

In this blog, we’ll break down the role tariffs play in the global economy, why they’re making headlines again, and what you can do to protect and grow your portfolio in light of these developments. 

What Are Tariffs?

Simply put, tariffs are taxes imposed by governments on imported goods. They serve three primary purposes:

Protection for Domestic Industries: By making imported goods more expensive, tariffs encourage consumers to buy locally made products. 

Revenue Generations: Tariffs also act as a source of income for governments.

Political Leverage: Tariffs on imports are often used as a diplomatic tool to pressure trade partners into policy changes, economic concessions, or other agreements.

While tariffs may seem like a straightforward tool, they have far-reaching consequences. Historically, tariff wars — like those during the Great Depression or the more recent U.S.-China trade dispute — have disrupted supply chains, driven up costs for businesses and consumers, and contributed to market volatility. 

Why Are Tariffs in the Headlines Again?

Recently, the Trump administration introduced new tariffs that have drawn significant attention from investors and policymakers alike: a 25% tariff on Canada and Mexico and a 10% tariff on China. The goal of these measures is to protect domestic industries and reduce reliance on foreign supply chains; however, the potential impact of these tariffs remains uncertain. Will they lead to inflationary pressures as companies pass increased costs on to consumers? Or will businesses absorb the expenses, cutting into profit margins? How will global markets and trading partners respond? This uncertainty creates challenges for investors as they try to assess how tariffs might impact different sectors and the broader economy. 

How Do Tariffs Impact the Stock Market?

Tariff announcements often spark uncertainty and volatility in financial markets. Sectors heavily reliant on global supply chains, such as technology, automotive, and agriculture, are typically hit hardest. Conversely, industries less dependent on imports — such as utilities, consumer staples, and healthcare — tend to be more resilient.

History offers valuable lessons about these effects. During the U.S.-China trade war in 2018-2019, tech companies saw stock prices decline as rising costs squeezed profits. Similarly, the Smoot-Hawley Tariff Act of the 1930s intensified trade tensions and likely contributed to the turmoil of the Great Depression. 

While history shows tariffs can strain markets, their effects vary based on how businesses respond in different economic environments. If companies raise prices to offset higher costs, consumer spending may decline, potentially weakening corporate earnings and economic growth. If businesses absorb the additional costs instead, profit margins shrink, investor confidence may drop, and lower earnings per share (EPS) could put downward pressure on stock valuations. For example, Goldman Sachs research found that President Donald Trump’s recent tariff proposals could reduce S&P 500 EPS forecasts by approximately 2-3% if sustained.

Tariffs can also influence inflation and monetary policy. If companies pass on cost increases, this could lead to higher consumer prices and contribute to inflationary pressure, potentially prompting the Federal Reserve to increase interest rates. Conversely, if companies see lower investment due to squeezed profit margins, the Fed might opt to cut rates.

Predicting tariffs’ full economic impact is difficult due to the complex interplay of trade policies, corporate strategies, and consumer behavior. Investors should stay focused on the bigger picture and prioritize long-term strategies over impulsive reactions to tariff-driven volatility.

Investment Strategies for Navigating Tariff Uncertainty

There’s no need to panic when tariffs make the headlines. Instead, consider these strategies to safeguard your portfolio.

Diversify Your Investments: Spread your investments across industries, regions, and asset classes to reduce the impact of tariffs on any one sector.

Consider Defensive Stocks: Companies in sectors like healthcare tend to perform well during economic uncertainty, as their products and services remain in demand regardless of market conditions. 

Identify “Tariff-Proof” Stocks: Look for companies with domestic supply chains or strong pricing power that can withstand higher costs. These businesses are often better positioned to navigate tariff-induced challenges.

Maintain a Long-Term Perspective: While tariffs can create short-term volatility, they rarely define the market’s long-term trajectory. Staying focused on your goals and adhering to a well-crafted investment plan can help you overcome temporary turbulence. 

What Should Investors Do Next?

Tariffs may be back in the headlines, but they don’t have to derail your financial plans. By understanding how these policies affect markets and implementing thoughtful investment strategies, you can safeguard your portfolio against uncertainty and even find opportunities amid the noise. 

If you’re unsure how tariffs might impact your investments, our team at Ironwood Wealth Management is here to help. We offer comprehensive financial planning services tailored to your goals, risk tolerance, and the market’s conditions. Schedule a consultation today.