How Tariffs Affect the Stock Market
04/04/2025
Tariffs are essentially taxes imposed by a government on imported goods. They’re often used to encourage consumers to buy domestic products by making foreign products more expensive. While tariffs can be a tool for protecting local industries and balancing trade, they can also impact global trade relationships and, in turn, stir up market volatility.
Historically, the stock market has responded to new tariffs with uncertainty, especially when they signal potential trade conflicts between major economies. Investors often worry that tariffs could lead to higher costs for businesses and consumers, lower corporate profits, or reduced global economic growth.
Here is the good news: the stock market has consistently shown resilience. While tariffs can shake investor confidence in the short run, markets typically adjust and recover as businesses adapt, trade relationships evolve, and policy becomes clearer. In many cases, economic fundamentals — such as consumer spending, innovation, and corporate earnings — have proven stronger than temporary disruptions caused by tariffs.
Examples:
U.S. - Europe Tariffs (2019-2020)
What Happened: Tariffs were imposed on goods such as aircraft and agricultural products due to long-running disputes over subsidies (Airbus vs. Boeing).
Market reaction: Minimal long-term impact. The market was more influenced by the COVID-19 pandemic during this time and rebounded strongly by the end of 2020.
Lesson: Broader economic factors often outweigh the effects of tariffs alone.
2. Trump-China Trade War (2018–2019)
What happened: The U.S. and China imposed multiple rounds of tariffs on each other’s goods, affecting hundreds of billions in trade.
Market reaction: The S&P 500 was volatile, with several sharp drops in 2018 and 2019. This includes a 4.10% drop on 02/05/18, 3.75% drop on 02/08/18, 2.41% drop on 05/13/19, 2.98% drop on 08/05/19 & 2.93% drop on 08/14/19. However, it rebounded and hit record highs by late 2019 and again in early 2020.
Lesson: Despite heightened uncertainty, the market recovered as companies adapted and partial trade deals were made.
3. Bush Steel Tariffs (2002)
What happened: President George W. Bush imposed tariffs of up to 30% on steel imports to aid the U.S. steel industry.
Market reaction: The stock market was already recovering from the dot-com crash, and Enron’s Ponzi Scheme was shaking investors as well. There was a big dip in investor confidence, as there was a 3.91% drop on 07/19/02, 3.61% drop on 07/22/02 and 3% drop on 07/24/02. Ultimately the S&P 500 ended 2002 down over 20%. The market made up all of it’s 2002 losses in 2003, but the S&P 500 did not reach it’s record high it previously hit in 2000 until March 2007.
Lesson: Multiple worries can prolong market struggles. One single issue rarely causes long term concern.
4. Reagan-Era Tariffs (1980s)
What happened: The Reagan administration imposed tariffs and quotas on Japanese cars, steel, and semiconductors to protect U.S. industries.
Market reaction: While there were brief concerns, the overall economy and stock market did well throughout the 1980s. The S&P 500 rose nearly 227% from 1982 to 1989.
Lesson: Tariffs in a strong economic environment didn’t derail market growth.
Conclusion & How This Might Affect You Personally:
Historically, many businesses adapt to market conditions, trade relationships shift and the long-term trajectory eventually continues upward.
If you are looking for CURRENT income from your investment portfolio, tariffs could have a big negative impact on your holdings if you are invested heavily in equities/stocks. This begs the question: were investing in equities right for your portfolio to begin with? It would be wise to reassess your holdings and/or income schedule.
If you need income in the next 5-7 years from your investment portfolio, tariffs will most not likely affect your portfolio. But as you get closer toward needing those assets, it would be wise to reassess and potentially reallocate some of your funds depending on your current holdings
If you don’t need income from your investments in the next 7 years, it is HIGHLY unlikely that you this will be detrimental your future investment income, and it’s equally as unlikely that you’ll remember any specific tariff announcements throughout your lifetime. Enjoy the ride!
*This article is not advice to invest your portfolio a certain way or reallocate any of your holdings. Past S&P 500 performance is not a guarantee of future performance. Please contact me to talk about your specific situation. You are never charged for meetings or advice.