From higher grocery bills, pricier electronics, and stock market swings, tariffs can impact your wallet and your investments.
5 min read
From the news to social media, tariffs seem to be dominating the media lately. You might not think about them when grocery shopping or buying a new phone, but they’re there: shaping what you spend, how much you earn, and where your money goes. In theory, tariffs are meant to protect domestic industries by making foreign goods more expensive. In practice, they can also mean fewer choices, higher prices, a more volatile stock market, and financial strain for both businesses and households. So, what do tariffs really mean for you? Let’s break it down.
Tariffs in a nutshell
At their core, tariffs are a type of tax that governments slap onto imported goods at their borders. They’ve been around for centuries, originally as a way for governments to collect extra cash. But these days, they’re more often wielded as an economic power move, either to protect local industries, or as a bargaining chip in international trade disputes.When a country imposes a tariff, it makes imported products more expensive. The idea is that this nudges consumers to buy local alternatives instead. But while tariffs might attempt to give domestic industries a leg up, they also tend to push prices up across the board, meaning consumers end up paying more.Love them or hate them, tariffs have been a political and economic flashpoint for centuries. And with recent trade policies making headlines, they’re not just a footnote in the history books. They’re shaping what we pay and will pay at the store, how much we earn, and even how our investments perform.
Footing the bill
Thanks to globalization, few products are made start-to-finish in just one country. A car built in the U.S. might have an engine from Germany, tires from South Korea, and software developed in Japan. Even something as seemingly simple as a t-shirt could use components and materials sourced from multiple countries.That’s why tariffs don’t just affect imported goods — they can drive up prices on products made at home, too. For example, the U.S. imports a staggering amount from China: more than $450 billion worth of goods. So, when a fresh 20% tariff is slapped onto those imports, someone has to cover the difference. According to the Tax Foundation, that ‘someone’ in this case is largely the American consumer, with the average household expected to pay an extra $329 per year as a direct result of tariffs.
A burden for lower-income households
Tariffs don’t impact everyone equally. According to the Yale Budget Lab, lower-income families are often hit harder than wealthier households when retaliatory tariffs are factored in. That’s because people with tighter budgets spend a larger share of their income on necessities like food and clothing, where price hikes are the most noticeable. Over time, the impact becomes more evenly distributed, as tariffs affect labor income and capital returns. But in the short run? Lower-income households feel the squeeze the most.What’s more, tariffs can be especially challenging for small businesses. Unlike major corporations, they don’t have the financial muscle to absorb rising costs or influence trade policy. Many rely on imported materials, which means higher costs for production. And if they pass those costs on to customers, they risk losing business to larger competitors who can be more flexible with their prices.
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Tariffs don’t exist in isolation. They’re just one piece of a much larger economic puzzle, influenced by everything from inflation and interest rates to global trade policies. That means it’s tricky to predict exactly how markets will react to new tariffs. Sometimes, other economic forces cancel out their impact, while other times, they send shockwaves through the stock market. Either way, there are a few things you can do to give yourself the best chance of riding out the market's volatility.
Focusing on the long-term
Periods of uncertainty can be unsettling, but history has shown that investors who focus on long-term strategy rather than short-term noise tend to come out ahead. Making constant tweaks to your portfolio in response to headlines can lead to poor timing, unnecessary trading fees, and, missing out on market rebounds.Take March 2020 as an example: When markets plunged at the start of the COVID-19 pandemic, many investors rushed to sell. But those who held their investments — or even kept investing — saw significant gains when markets rebounded just months later. Every bear market in history has been followed by a bull market. While past performance isn’t a guarantee of the future, sticking with your investments through the tough times can pay off.
The importance of consistency and diversifying
Contributing regularly is a popular strategy for weathering a volatile market. This can help you build wealth steadily over time, and you’re less weighed down by the stress of timing the market. Additionally, spreading your investments across different sectors, industries, and even countries ensures you’re not overexposed to one area that might be hit hardest by trade disputes.Markets are unpredictable, and tariffs are just one of many factors influencing stock prices. It’s easy to get caught up in headlines, yet history shows that staying invested, automating contributions, and diversifying wisely are some of the best ways to keep your financial future on track.
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