Tariff Series Part 3: Tariffs and Your Portfolio – Wrapping It All Together
Welcome to the third and final installment in our Tariff Series. Tariffs are back in the spotlight, and if history has taught us anything, it’s that trade policies can shake up the economy and markets in unexpected ways. But before we jump ship and hide for the next few years, let’s take a step back and look at the big picture.
In this third installment of our Tariff Series, we’ll do a quick review of what tariffs are, why they’re used, how they can help or hurt the economy, and—most importantly—what they mean for your portfolio in today’s environment.
A Quick Refresher: What Are Tariffs and Why Do They Exist?
Tariffs are taxes on imported goods, usually intended to protect domestic industries or correct trade imbalances. They can be useful tools, but they also come with consequences—both intended and unintended.
Historically, tariffs have been used to:
- Protect domestic industries from cheaper foreign competition
- Encourage domestic manufacturing by making imports less attractive
- Generate government revenue (though this is less common today)
- Address trade imbalances by discouraging reliance on foreign goods
Sounds good in theory, right? The challenge is that tariffs can also raise costs for businesses and consumers, disrupt supply chains, and trigger retaliatory measures from trading partners.
How Tariffs Affect Different Companies & Industries
Some companies and industries are more exposed to tariffs than others. Here’s a quick breakdown:
Retailers: Who’s at Risk?
- Retailers that rely heavily on Chinese imports—like discount stores—are likely to feel the pinch.
- Companies with diversified supply chains or domestic sourcing—such as home improvement chains—may be better insulated from price hikes.
Regional Banks vs. Auto Manufacturers
- Regional banks may be less impacted by tariffs compared to industries with direct supply chain exposure.
- Auto manufacturers, which rely on parts and production in Mexico and Canada, may face higher costs and supply chain disruptions.
- Tariff silver lining for banks? If tariffs make it easier for U.S. businesses to compete, regional banks could benefit from increased lending activity to small and mid-sized businesses looking to expand operations.
These are just a few examples of industries that could be affected, but it’s important to remember that things don’t always play out as expected. Companies and markets have a way of adapting, and the long-term impact of tariffs depends on how businesses respond and adjust to new trade policies.
If you want to learn more about how tariffs work or how they typically impact the economy, check out Part 1 and Part 2 of our Tariff Series.
What’s Going On With Tariffs Right Now?
Okay, now that everyone is caught up, let’s talk about what’s going on right now. Unlike the slower rollout of tariffs during the 2018-2020 trade war, the Trump 2.0 administration has come out swinging.
Recent Tariff Announcements & What’s Next
- New tariffs on Mexico, Canada, and China were implemented rapidly after Inauguration Day.
- More planned tariffs in April—expected to be reciprocal in nature, meaning they’ll match or counter existing trade restrictions from other countries.
- Potentially larger economic impact compared to 2018 due to the speed and severity of implementation.
- Market reaction: The aggressive rollout has already spooked the markets, particularly growth stocks, as investors weigh the potential economic effects.
- Policy priorities have shifted: In 2018, the administration was very mindful of stock market performance. This time, the focus appears to be more on economic policy than keeping investors happy in the short term.
- Federal Reserve’s different stance: In 2018, the Fed was actively raising interest rates. Now, they’ve been cutting rates but are taking a more neutral stance at the moment.
Lessons from the Last Tariff Showdown (2018-2020)
Looking back at the last round of tariffs, we saw periods of market drawdowns, with the S&P 500 dropping as much as 17.54% at its lowest point. But here’s the key takeaway—despite the volatility, the S&P 500 still ended up over 20% during that almost 2-year time period.
And many of the tariffs put in place back then? They’re still in force today. Businesses adapted, supply chains shifted, and life moved on.
This lines up with broader market history—volatility is normal, and long-term investors who stay the course typically fare better. The S&P 500 has historically seen multiple 5-10% pullbacks per year and still achieved strong long-term gains. This is why trying to time the market around tariff news or other uncertainty can be riskier than simply staying invested.
What’s Different This Time Around?
While there are similarities, this round of tariffs has some important differences:
- Speed & Aggressiveness: The administration has implemented tariffs much faster than in 2018, leaving less time for markets and businesses to adjust.
- More Tariffs on the Horizon: The expected reciprocal tariffs in April could escalate trade tensions further.
- Potential for a Larger Economic Impact: The combination of broad-based tariffs and tighter financial conditions could have greater consequences.
- Market Reaction Has Been Sharper: Growth stocks have been hit particularly hard due to concerns over economic slowdown.
- Policy Priorities Have Shifted: In 2018, the administration was very focused on market performance. This time, economic policy seems to be taking precedence over keeping markets calm.
- The Federal Reserve’s Stance: Unlike in 2018 when rates were rising, the Fed is currently neutral and not in a rush to cut rates further.
My Take: There’s More to This Than Meets the Eye
There’s more going on here than just tariffs. While the headlines focus on trade battles and economic uncertainty, the bigger picture suggests a more calculated approach by the administration.
The Trump administration has a narrow window to push its agenda before midterm election season kicks in. Right now, they have full control of Washington, but as election season approaches, members of Congress in battleground states will be less willing to go along with aggressive policies. That means the more controversial economic measures—like sweeping tariffs—need to happen early in the administration’s timeline.
Another key factor? Debt. The federal government has $9 trillion in debt maturing this year—that’s about 33% of all outstanding government debt. One of the administration’s clear goals is to bring down the 10-year Treasury yield, which would make refinancing that debt cheaper. The problem? The Federal Reserve has indicated that they aren’t in a hurry to lower interest rates unless absolutely necessary. That’s where economic uncertainty could come into play.
Historically, when uncertainty increases, investors move away from stocks and into bonds—pushing Treasury yields lower. If tariffs and market volatility trigger a flight to safety, bond prices could rise, and interest rates could drop. This would make it easier for the government to refinance its maturing debt at lower rates and on longer terms, rather than continuously rolling over short-term debt every year.
The Federal Reserve also has wiggle room in its monetary policy. Right now, they are still practicing quantitative tightening (QT)—meaning they are allowing bonds on their balance sheet to mature without reinvesting the proceeds. If they shift to a neutral stance on QT and start rolling over maturing bonds into new ones, that could help bring down Treasury yields. And if economic slowing becomes more pronounced, the Fed could step in and cut interest rates to keep things from getting out of hand.
If there’s going to be an economic slowdown, the administration would prefer it happen sooner rather than later—giving time for the economy to recover before the next election cycle. That explains the fast and furious approach to tariffs since Inauguration Day.
That being said, this is a risky game. If sentiment turns too negative, the economy could enter a self-reinforcing slowdown. Right now, the risk of a recession remains low, but if uncertainty lingers too long, the slowdown could snowball into something deeper. There’s a limit to how much economic turbulence the administration and Federal Reserve are willing to tolerate before stepping in.
In the near-term the market could recover a bit due to the speed of the recent decline, but I think this year is going to be more volatile than we’ve seen in a while. Does this mean 2025 will be a throw-away for the market? No, I don’t think so… Volatility doesn’t necessarily mean a negative year, we’ll just need to have a little more patience to get through the bumps this year
Final Thoughts
Markets hate uncertainty, and tariffs are a wildcard that can shift market sentiment quickly. But history shows that businesses adapt, portfolios adjust, and the economy finds a way forward. While the short-term market reaction to tariffs can be volatile, long-term investors who stay the course tend to fare better than those who react emotionally to headlines. Finally, if you find yourself losing sleep at night because of your investments, maybe it’s time to talk to your advisor about taking another look at your risk tolerance.
I hope you’ve enjoyed this Tariff Series and found it beneficial in some way. If you want dive into some more of our content, please check out our website at paragon-wealth.com, Facebook, LinkedIn, or YouTube.
As always, the key is to stay informed, stay diversified, and avoid emotional investment decisions. If you have any questions about how this evolving trade environment could impact your portfolio, let’s talk.
📞 Give us a call at 215-348-3176 or email us at info@paragon-wealth.com.
About Ricardo
Ricardo J. Ferreira is the Portfolio Manager at Paragon Wealth, a firm he co-founded with Charlie McNamara, III, and Phil Rosenau. With a passion for finance and a talent for solving complex financial challenges, Ricardo leads the firm’s investment strategies, ensuring clients receive personalized and forward-thinking solutions.
A decorated U.S. Navy Veteran, Ricardo served at N.A.E.S. Lakehurst and aboard the USS George Washington, where he worked in aviation support. After his military service, he studied economics at Liberty University and began his financial career at Prudential Financial, where he met his future partners, Charlie and Phil.
Outside of work, Ricardo enjoys spending time with his family. He is married to Tina, owner of Main Street Accounting & Tax, and they have two children. Active in his community, Ricardo participates in various local events and serves on the finance council at St. Jude Parish in Chalfont. A passionate runner, he can often be found competing in local 5k and trail races on the weekends. To learn more about Ricardo, connect with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor. Great Valley Group and Paragon Wealth Management are separate entities from LPL.