The first half of 2025 was marked by renewed global trade tensions, as President Trump introduced a wide array of tariffs, from a 25% duty on imports from Mexico and Canada to an additional 10% tariff on Chinese goods. These actions quickly escalated into broader “Liberation Day” tariffs – blanket reciprocal tariffs targeting nearly 60 global trade partners.
In response, many countries imposed retaliatory tariffs on U.S. goods. The U.S. later agreed to a 90-day pause to allow time for negotiations. Shortly after, legal challenges arose claiming the tariffs exceeded presidential authority, but elevated tariffs remain in place across many sectors as formal trade talks continue.
With the 90-day pause on this April’s sweeping tariffs set to expire on July 8, we thought it timely to revisit a few key tariff fundamentals and provide our perspective on what investors can expect.
Tariffs: More than just taxes
Tariffs have been tools of economic policy for centuries. Governments often employ tariffs to accomplish three main objectives known as the “Three Rs”:
- Revenue: Generating income for the government
- Restriction: Limiting imports to protect domestic industries
- Reciprocity: Encouraging fair trade agreements between countries
All three objectives are in play in this most recent round of tariff negotiations. But while policymakers debate their merits, investors are left to determine what the latest moves might mean for their portfolios and the economy.
To assess what this might mean for investors, let’s first look at how markets have responded so far this year.
Market reactions
On April 8, 2025, the Trump administration announced a 104% tariff on Chinese imports, exacerbating concerns over escalating trade tensions. This marked the low point of a steady market decline, with U.S. stocks falling 19% from previous highs, just shy of official bear market territory. Yet, in a swift reversal, the market surged nearly 10% the very next day following an announcement of a 90-day pause on the proposed tariffs.
Despite this volatility and unsettling headlines, markets have delivered positive returns on the year. Consider the following year-to-date returns:
- U.S. stocks and bonds are up 6% and 4%, respectively.
- Emerging-market stocks have risen nearly 14%.
- Developed international markets have gained more than 20%.
These returns underscore two key investment principles. The first is that markets are efficient. They incorporate new information in real time, and trying to outguess them is a losing game.
The second principle is that diversification works. While U.S. stocks saw a nearly 20% peak-to-trough decline through early April, the drawdown of a typical Vista balanced portfolio was just half that. And thanks to global diversification, that same type of balanced portfolio is up roughly 6% to 7% so far this year.
Lessons from past trade wars
This isn’t the first time tariffs have roiled markets. During President Trump’s first term in office, his administration began imposing tariffs on a broad range of Chinese goods, leading to years of back-and-forth trade negotiations. While the two countries eventually reached an agreement, many of the original tariffs remained in place.
Despite that 2018 uncertainty, both the Chinese and U.S. stock markets posted higher cumulative returns than the global stock market during Trump’s first four years in office. Inflation also didn’t spike as many expected, and stock market volatility proved to be short-lived.
The takeaway?
Investors who stayed the course saw conditions normalize quickly.
What should investors do today?
While tariff announcements can create short-term uncertainty, the lessons from this year rhyme with those from history — companies adapt, trade continues, and markets move forward. The primary risk for investors isn’t tariffs, but rather overreacting to tariff headlines.
In the coming days, we’re likely to hear a lot more about tariffs. Markets may turn volatile as investors digest the latest news.
Ultimately, however, tariffs are just one piece of short-term market noise in the long-term investing game. The best course of action? Stay disciplined, stay invested, and avoid letting headlines – both positive and negative – dictate your investment decisions.
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