New Tariffs, Market Reactions, and What It Means for Investors

Yesterday, President Trump announced new tariffs on most major U.S. trading partners. These tariffs match the ones other countries impose on U.S. goods and are in addition to previous ones.

The average rate is 25%, with some as high as 49%. While the White House had signaled these tariffs were coming, their scale surprised many investors and economists. The stock market reacted negatively, with the S&P 500 dropping over 3% and the 10-year Treasury yield falling to around 4%.

The White House has announced reciprocal tariffs

Tariffs are a controversial topic with pros and cons. No matter how you feel about them, these new tariffs mark a big shift in global trade.

Markets can be unpredictable in the short term but tend to bounce back over time. Throughout history, markets have weathered major disruptions, including wars, recessions, financial crises, pandemics, and political changes.

Market drops can feel alarming, but history shows that markets often recover when least expected. We saw this after the 2008 financial crisis, during the pandemic in 2020, and in 2022 following a tech-driven downturn.

Sticking to a financial plan and staying invested—or even buying when prices are low—is key to long-term financial success.

Here are the key details. The new tariffs start at 10% and vary by country based on the U.S. trade deficit. China faces a 34% tariff on top of a previous 20%. The European Union is subject to 20% tariffs. Canada and Mexico are not affected by these new tariffs but still face earlier 25% tariffs tied to immigration and fentanyl concerns. Additionally, all imported cars now have a 25% tariff.

The U.S. has used tariffs for a long time. Before the income tax was introduced in 1913, they were the government’s main source of revenue. However, after World War II, tariffs became less common due to globalization.

The government argues that tariffs will raise revenue and support American manufacturing. This policy, called "Make America Wealthy Again," aims to reduce the trade deficit and address what the administration sees as unfair trade practices.

Critics argue that tariffs act like a tax on consumers, making goods more expensive. With inflation already affecting households, this is a big concern. Some economists also believe past high tariffs made the Great Depression worse and slowed economic growth.

Trade war uncertainty is fueling market volatility

For long-term investors, it’s important to recognize that trade policy is an ongoing process. The "America First Trade Policy" was signed on January 20, and the president’s stance on trade has been clear. These new tariffs show the administration is serious about making changes, but negotiations with other countries could still happen, as they did during Trump’s first term.

How will this affect businesses and markets? The full impact will take time to understand, but some industries will be hit harder than others. The main concern is that tariffs could raise prices and slow the economy. Markets have already reacted negatively this year.

While some U.S. manufacturers may benefit from reduced foreign competition, trade restrictions can hurt corporate profits, at least in the short term. In 2018, when tariffs were last introduced, many companies moved their supply chains away from China to avoid extra costs. Some may do the same now, but this process takes time.

Industries most affected will be those that rely heavily on international sales. About 30% of S&P 500 revenues come from overseas, with tech, materials, communication, consumer goods, and energy companies being the most exposed.

Besides affecting revenues, tariffs can also shrink company profits by raising costs for imported materials. Before the April 2 announcement, the 2025 earnings growth forecast for the S&P 500 had already dropped from 14.2% to 11.5%, according to FactSet. However, strong profit margins and rising productivity could help cushion the impact.

One possible benefit is that a weaker U.S. dollar could help both investors and businesses. International stocks have performed well this year, and a weaker dollar increases the value of foreign investments in U.S. dollar terms. For U.S. companies, a weaker dollar can also boost sales abroad since their goods become cheaper for foreign buyers.

Markets rise over long timeframes despite major setbacks

While the stock market reacted negatively to these tariffs, the true impact will take time to unfold. Investors have faced many market challenges in recent years, including the pandemic, inflation, Federal Reserve policy concerns, and recession fears. Each of these issues seemed like a major threat at the time.

Yet, markets have recovered and reached new highs after each downturn. While the past doesn’t guarantee future performance, history suggests that markets and the economy can adapt and move past current worries.

As Warren Buffett noted in 2008, during the global financial crisis: "In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

This is a reminder that while market drops can be unsettling, staying focused on the long term is the best way to achieve financial goals.

As investors, it’s important to focus on what we can control. Given recent market movements and policy changes, the best strategy is to stay committed to a long-term financial plan and avoid making emotional investment decisions.

Process over predictions.

Shean