In the last few weeks, there has been a spotlight on tariffs, trade, and their impact on both the US market and the market worldwide. Although anticipated given campaign rhetoric, in early February, the Trump administration proposed 25% tariffs on a broad range of goods from Canada and Mexico, while also increasing those already in effect against China. Over the following weeks, the administration announced delays, exemptions, and then expansions to the initial tariff proposals. In response, China, Canada, and Mexico imposed retaliatory tariffs, raising the prospects of a new trade war and increasing fears of a broader economic slowdown.
Uncertainty around trade policy has driven the Economic Policy Uncertainty Index to levels not seen since the onset of the COVID-19 pandemic, highlighting the market’s sensitivity to shifting economic policies. While 2025 has been volatile, studies have shown that the best investment results come from patience, broad diversification, and ownership of high-quality businesses rather than reactionary decision-making.
Understanding Tariffs and their Role
Tariffs are duties imposed on imported goods, designed to either protect domestic industries or generate government revenue. While they’ve been part of U.S. economic policy since the country’s founding, their impact on markets is significant. Tariffs can influence corporate profitability, disrupt supply chains, and dampen overall economic growth. Investors closely monitor tariff policies since changes in trade relationships often trigger uncertainty and volatility.
Recent Tariff Impacts and Market Reactions
One of the most notable examples of tariff-driven market reactions was the so-called US-China Trade War in 2018. The imposition of tariffs between two of the largest economies in the world led to significant market volatility, with the S&P 500 experiencing multiple corrections. In 2018, the MSCI China A shares index dropped over 30%, and U.S. stocks fell by over 4%. The uncertainty caused supply chain disruptions, higher input costs, and delayed business investments, as noted in the Federal Reserve’s July 2019 Beige Book.
Despite the turmoil, markets rebounded strongly in 2019. The S&P 500 surged 31.49%, and the MSCI China A shares index gained 36%. While the Phase One trade deal contributed to the recovery, other factors—such as the Federal Reserve’s three interest rate cuts and global stimulus measures—helped stabilize investor sentiment. This demonstrates that market movements are rarely driven by a single factor, and economic complexity often leads to unexpected outcomes.
Market Volatility and Investor Sentiment
Uncertainty surrounding tariffs and economic policy often leads to increased market volatility. The CBOE Volatility Index (VIX), known as the “fear index,” surged over 60% following tariff escalations in early 2019.
While market swings can be unsettling, history suggests that disciplined investors tend to fare better over time. Research from Fidelity shows that markets have historically delivered strong long-term returns even during periods of elevated uncertainty. Attempting to time the market based on short-term news often leads to underperformance, as reactionary decisions can lock in losses and miss out on recoveries.
Broader Economic Complexities
Tariffs are only one piece of a larger economic puzzle. Other factors influencing markets include:
Monetary Policy: The Federal Reserve’s interest rate cuts in 2019 provided a major tailwind for equities, demonstrating how central bank actions can mitigate trade-related uncertainty.
Fiscal Policy and Global Stimulus: Countries like China implemented stimulus measures to cushion the impact of trade tensions, while Germany introduced its largest fiscal overhaul since reunification.
Currency Strength: The strength of the U.S. dollar affects trade flows, impacting the competitiveness of U.S. exports and corporate earnings.
Tax Policy: Changing tax rates can stimulate economic growth by increasing disposable income for consumers and by encouraging business capital investment and expansion.
This interconnectedness reinforces the importance of looking beyond a single factor—such as tariffs—when evaluating market movements.
The Importance of a Long-Term Perspective
Despite short-term volatility, long-term investors who stay the course have historically been rewarded. Market analysts frequently emphasize the dangers of emotional investing. Intra-year market corrections, while uncomfortable, are not uncommon. After setting a new all-time high in February, the S&P 500 has now fallen by more than 10% as of mid-March 2025. While corrections of this magnitude can be uncomfortable, they are not uncommon from a historical perspective. Since 1980, the market has seen pullbacks greater than 10% in roughly half of all years, yet the average annual return over this period was 13.3%. More recently, in 2024, the S&P 500 fell by as much as 8.45% but still finished the year with a gain of 25.7%.
Conclusion
While tariffs can generate short-term market volatility, they are only one of many factors shaping economic and market performance. History has repeatedly shown that markets adapt—supply chains adjust, businesses find new opportunities, and policymakers can choose to respond with stimulus when necessary. Investors who react emotionally to uncertainty often miss out on the recoveries that follow.
Rather than attempting to time the market based on individual events, maintaining a disciplined, long-term approach centered on diversification and high-quality investments remains the best strategy. Just as markets overcame the volatility of the 2018–2019 trade war, they will continue to navigate future challenges. Investors who stay focused on the bigger picture will be best positioned for long-term success.
Investment Commentary: Tariffs, Market Volatility, and the Importance of Maintaining a Long-Term Perspective
By Matthew Hart, CFA®
In the last few weeks, there has been a spotlight on tariffs, trade, and their impact on both the US market and the market worldwide. Although anticipated given campaign rhetoric, in early February, the Trump administration proposed 25% tariffs on a broad range of goods from Canada and Mexico, while also increasing those already in effect against China. Over the following weeks, the administration announced delays, exemptions, and then expansions to the initial tariff proposals. In response, China, Canada, and Mexico imposed retaliatory tariffs, raising the prospects of a new trade war and increasing fears of a broader economic slowdown.
Uncertainty around trade policy has driven the Economic Policy Uncertainty Index to levels not seen since the onset of the COVID-19 pandemic, highlighting the market’s sensitivity to shifting economic policies. While 2025 has been volatile, studies have shown that the best investment results come from patience, broad diversification, and ownership of high-quality businesses rather than reactionary decision-making.
Understanding Tariffs and their Role
Tariffs are duties imposed on imported goods, designed to either protect domestic industries or generate government revenue. While they’ve been part of U.S. economic policy since the country’s founding, their impact on markets is significant. Tariffs can influence corporate profitability, disrupt supply chains, and dampen overall economic growth. Investors closely monitor tariff policies since changes in trade relationships often trigger uncertainty and volatility.
Recent Tariff Impacts and Market Reactions
One of the most notable examples of tariff-driven market reactions was the so-called US-China Trade War in 2018. The imposition of tariffs between two of the largest economies in the world led to significant market volatility, with the S&P 500 experiencing multiple corrections. In 2018, the MSCI China A shares index dropped over 30%, and U.S. stocks fell by over 4%. The uncertainty caused supply chain disruptions, higher input costs, and delayed business investments, as noted in the Federal Reserve’s July 2019 Beige Book.
Despite the turmoil, markets rebounded strongly in 2019. The S&P 500 surged 31.49%, and the MSCI China A shares index gained 36%. While the Phase One trade deal contributed to the recovery, other factors—such as the Federal Reserve’s three interest rate cuts and global stimulus measures—helped stabilize investor sentiment. This demonstrates that market movements are rarely driven by a single factor, and economic complexity often leads to unexpected outcomes.
Market Volatility and Investor Sentiment
Uncertainty surrounding tariffs and economic policy often leads to increased market volatility. The CBOE Volatility Index (VIX), known as the “fear index,” surged over 60% following tariff escalations in early 2019.
While market swings can be unsettling, history suggests that disciplined investors tend to fare better over time. Research from Fidelity shows that markets have historically delivered strong long-term returns even during periods of elevated uncertainty. Attempting to time the market based on short-term news often leads to underperformance, as reactionary decisions can lock in losses and miss out on recoveries.
Broader Economic Complexities
Tariffs are only one piece of a larger economic puzzle. Other factors influencing markets include:
This interconnectedness reinforces the importance of looking beyond a single factor—such as tariffs—when evaluating market movements.
The Importance of a Long-Term Perspective
Despite short-term volatility, long-term investors who stay the course have historically been rewarded. Market analysts frequently emphasize the dangers of emotional investing. Intra-year market corrections, while uncomfortable, are not uncommon. After setting a new all-time high in February, the S&P 500 has now fallen by more than 10% as of mid-March 2025. While corrections of this magnitude can be uncomfortable, they are not uncommon from a historical perspective. Since 1980, the market has seen pullbacks greater than 10% in roughly half of all years, yet the average annual return over this period was 13.3%. More recently, in 2024, the S&P 500 fell by as much as 8.45% but still finished the year with a gain of 25.7%.
Conclusion
While tariffs can generate short-term market volatility, they are only one of many factors shaping economic and market performance. History has repeatedly shown that markets adapt—supply chains adjust, businesses find new opportunities, and policymakers can choose to respond with stimulus when necessary. Investors who react emotionally to uncertainty often miss out on the recoveries that follow.
Rather than attempting to time the market based on individual events, maintaining a disciplined, long-term approach centered on diversification and high-quality investments remains the best strategy. Just as markets overcame the volatility of the 2018–2019 trade war, they will continue to navigate future challenges. Investors who stay focused on the bigger picture will be best positioned for long-term success.
Shannon DermodyTEST