How can tariffs affect the stock markets?
Recent times have noted escalating tension due to tariffs being imposed on countries depending on their supplying or selling their goods to the USA. The reason for imposing tariffs is mainly to bring import duties to the country, thereby strengthening the economy. But on the other hand, since countries have retaliated and imposed similar tariffs on America, the effect will be more interesting than ever before. The aphorism behind putting the tariffs in place is mainly to discourage people from buying goods from abroad. By using domestic goods, the market would strengthen the manufacturing segment and generate employment. However, there are several questions in the minds of the consumer and the stock market investors.
What could be the economic impact of tariffs?
Tariffs will lead to steeper inflation: there will be a price increment due to the higher tariffs on imported goods. The local producers will take advantage of the situation and increase their market price in response to the competition. According to a study, the one-year-ahead inflation surged to almost 4.9% in March, the highest in 28 months. According to another study, the core expenditure would rise to almost 2.8% in 2025, excluding food and energy from the list. The last projected figure was 2.5 % in 2024. The inflation might be transitory, as one-time tariff hikes might slow the aggregate demand. The economic impact of tariffs might lead to an inevitable increase in prices of goods over time.
- Production reshoring will raise costs: The world economy relies on the global supply chain. Mainly in cases of manufacturing, certain components are manufactured in countries having lower labor costs. Since certain countries have retaliated, the cost of importing those components will be higher. The resultant tariff hike will be reflected in the price of items, and the buyers will bear the brunt of the increased price. This theory might not be applicable in the case of services like research, design, marketing, and computer coding. In case the low-value manufacturing is reshored in the country, there will be an increase in cost due to higher skilled labor costs, and it might lead to the inefficient allocation of economic resources. The result of this theory will always lead to raising costs of manufactured items.
- Consumer spending to slow down: When the price of goods increases, the net effect on the spending capacity will decrease, leading to reduced market volatility. According to studies, in 2024, the tariff rates in the US were 3.3%. This rate will be increased to 5% in 2025, according to economists. The increase in prices will bring a slump in the purchasing power of consumers. Experts say that the increase in tariff rates is almost double the rate as seen in 1909.
What sort of tariff policies could be applied to the stock market?
The recent tariff rates left investors with a sweeping concern to the investors as tariffs recorded an all-time high since the last century. The unpredictable tariff rates imposed by the present American government have caused a nudge in the stock market as it records the highest volatility. But the long-term investors could be a benefit, as there was some panic selling happening in the market. The result was that the stocks opened at their lowest and started dipping down. There was a 90-day halt to the retaliation and further announcement of tariffs in the US. This triggered a sense of relief, and some stocks slightly saw a rise in prices, while the others remained bearish. The nature of tariff policies in the stock market will dominate the trend of being upscale or sliding down.
What effect will tariffs have on industries?
Certain industries will be highly affected by the imposing of tariffs.
• Mining: The reciprocal policies on tariffs can bring an adverse effect in mining since most of the oil & gas extraction comes from Canada and is presently imposed with a 25% tariff. The supply of rare earth comes from China and presently sees a 20% tariff on goods imported. The US being an exporter of energy might face downstream effects on domestic production.
• Manufacturing: The US manufacturers depend on the export market for their living. Tariffs might be a potential boon to the manufacturing segment in the future, although the supply chain is vulnerable currently.
•Agriculture, Forestry, Hunting, and Fishing: The US is known to produce most of its food but relies on 10% from others, such as beef, pork, canola oil from Canada, vegetables, and fruits from Mexico. Both countries are levied with 25% tariffs. The country won’t face an acute shortage of food, but certain prices might see a steep rise.
• Wholesale trade: Various B2B industries relying heavily on China and Mexico are currently facing 20% and 25% tariffs. These goods belong to the transportation and manufacturing category. Whether the industry will have to rely on homegrown products depends heavily on consumer demands.
• Warehousing and transportation: The country is dependent on Mexico for vehicle parts. Mexico currently faces 25% tariff rates. Transporting and warehousing will face reciprocal tariffs and might have a shortage of 8% of the exported output. The tariff effect on these industries will vary, but the services segment might remain unaffected.
How will the tariff policy affect the long-term investors?
The result of tariffs might lead to increased market turbulence as there are steep fluctuations. It’s important that the investors remain focused on their long-term goals. Having investments in the right kind of mix of bonds and shares can protect the portfolio from any market turndown. There can be stupendous effects on the tariff on the long-term investors, but things will stabilize with time by choosing the categories not going to be affected by the imposing.
Changing government policies will have a prominent effect on the economies, and consumer demand will determine the future of business in the US. The rest of the world retaliates to tariffs, but in the long run it could be self-reliant in specific industries.
Reference sites:
https://www2.deloitte.com/us/en/insights/economy/spotlight/united-states-tariffs-impact-
economy.html
https://www.investopedia.com/trump-tariffs-stock-market-volatility-buying-opportunity-
11713537
https://www.nationalbusinesscapital.com/data-reports/industries-feel-effects-of-tariffs/
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/how-
could-tariffs-impact-long-term-investors
https://www.reuters.com/markets/global-markets-wrapup-1-2025-04-14/
