What Are Tariffs and Why Should Investors Care?

What Are Tariffs and Why Should Investors Care?

Picture this: You’re sipping your coffee in Munich, scrolling through the markets, and you see the headline — “U.S. Announces 25% Tariff on EU Steel and Auto Parts.” You blink. Maybe you think, that’s America’s problem, not mine. But that’s where you’re wrong: tariffs don’t stop at borders. They ripple through economies, disrupt supply chains, shake investor confidence, and even, yes, your investment portfolio. 

In the simplest terms, a tariff is a tax on imports. Governments use them to make foreign products more expensive, protect local industries, or flex their political muscles (no pun intended). In 2025, they’re back more so than ever.

The U.S., under Trump’s new term, is rolling out aggressive trade policies. We’re talking 20% on Chinese goods, 25% on steel, aluminum, and autos from Canada, Mexico, and the EU. The goal? Bring manufacturing home. The risk? A tangled global economy and volatile markets.

How do tariffs work?

Tariffs sound technical, but they boil down to a few key ideas:

• Ad valorem tariffs: Percentage-based taxes (e.g., 25% on EU steel)

• Retaliatory tariffs: Tit-for-tat measures from other nations (e.g., EU duties on U.S. agricultural goods)

• Revenue tariffs: Used to raise government funds. The 2025 Trump tariffs alone are projected to bring in $258.4 billion, the biggest U.S. tax bump since 1982

  
  

Real-World Impact

Let’s say you’re a Swiss company importing European steel. A U.S. tariff of 25% means that steel now costs you more. You either eat the cost or pass it on to consumers. Cue rising prices for cars, fridges, buildings, and more.

Why Should Investor Care?

Tariffs squeeze companies. Higher input costs mean lower margins. S&P 500 earnings growth is expected to dip 2.5 percentage points this year.

Some sectors feel the heat more than others. Industries like energy, materials, industrials, and consumer discretionary are among the most impacted, facing rising costs and tighter margins. On the other hand, sectors such as financials and communications tend to be more insulated from the direct effects of tariffs, showing greater resilience in turbulent trade environments.

In terms of commodities, Section 232 tariffs now cover $34.6 billion in steel and $18.5 billion in aluminum imports, placing a significant burden on industries that rely on these materials. The automotive sector is also under strain, with a 25% tariff on non-USMCA car parts posing serious challenges for U.S. manufacturers, particularly in states like Michigan and Ohio, where the industry plays a major economic role.

The 2025 Tariff Landscape

According to Aston University, if retaliatory tariffs escalate, we could see a $1.4 trillion global loss, and a drop in U.S. GDP per capita.

• 25% tariffs on non-USMCA imports from Canada and Mexico

• 20% on EU goods

• 34% on Chinese products

  
  

Swiss Market Perspective

Switzerland, while neutral, isn’t immune. Export-heavy giants like Nestlé, ABB, and Novartis could be caught in the crossfire. But there’s a silver lining! Switzerland’s diversified supply chains and non-aligned trade status give it room to maneuver.

How Should Investors Respond?

To respond effectively to tariff-related uncertainty, it’s important to diversify geographically so you’re not overly exposed to regions hit hardest by trade tensions. Focusing on defensive sectors like healthcare and utilities can also provide more stability, as these industries tend to hold up better during periods of economic volatility. 

It also serves well to pay attention to companies that are adapting their supply chains by moving production closer to home. Firms investing in nearshoring strategies, such as Ford and GM, may be better positioned to absorb the impact of shifting trade policies.

Don’t Panic, Plan

Cannot stress this enough. In times of uncertainty, it’s tempting to sell. But history shows that reacting emotionally can cost you. During COVID-19, investors who sold during the March 2020 crash often missed the rebound that followed just months later.

Instead of trying to time the market, focus on:

• Staying invested through the noise

• Rebalancing your portfolio if certain sectors become too exposed

• Keeping cash reserves to seize opportunities when prices dip

What Do Tariffs Mean for the Everyday Individual?

Even if you're not tracking markets every day, tariffs still affect your life. For most 

people, the most immediate impact shows up in prices. Imported goods (smartphones, cars, groceries, or electronics) can become more expensive as tariffs raise the cost of raw materials or finished products. These increases often trickle down to consumers, who may not even realize why their weekly shop suddenly costs more. What’s worse (as a traveller myself), traveling or working abroad, tariffs can raise prices in hospitality, fuel, or even flight costs, making trips more expensive than expected. 

On the job front, industries closely tied to international trade like logistics, automotive, or precision manufacturing can face slowdowns, hiring freezes, or cost-cutting as companies adjust to new economic pressures. 

And if you have a pension, investment-linked savings account, or simply contribute to a retirement fund, remember that those are invested in the markets too. Volatility driven by trade uncertainty can shake their value, meaning your long-term financial security could take a hit even if you’ve never bought a single stock.

Final Thoughts: Stay Informed, Think Global

It’s 2025, people! I highly recommend reading or watching the news.

Tariffs are no longer just a matter for policy wonks and politicians. They affect markets, businesses, prices, and people in very real ways. If you’re running a small business or wondering why your groceries cost more, then you know who the culprit is. 

For investors, navigating this landscape can feel overwhelming, but it doesn't have to be. Staying informed and understanding the broader economic shifts is the first step. The second is building a strategy rooted in calm decision-making, solid diversification, and a long-term mindset. Trade wars may stir up uncertainty, but with a steady hand and a thoughtful approach, your portfolio can weather the waves and keep moving forward.