By Tyler Ellegard
The US stock market, as measured by the S&P 500 Index, reached an all-time high on February 19 of this year but has since retreated amid escalating tariff tensions and their broader economic implications. The ongoing fluctuations in tariff policies across various product categories have created challenges for companies, complicating cost management and increasing the risk of supply chain disruptions. This uncertainty has not only weighed on investor confidence but has also heightened concerns about US economic growth, contributing to continued market volatility.
The broad implementation of tariffs, and the moving target of implementation versus negotiation, between major trading partners like China, Canada, and Mexico is creating a ripple effect throughout the United States economy. Tariffs act as an additional tax on products that are imported, increasing prices to businesses and consumers. These rising prices lead to inflationary pressures and affect the purchasing power of a consumer that is still grappling with higher prices in the post-Covid era. Given our economy is predominantly driven by consumer spending, concerns are beginning to arise on how much more price impact consumers can take. The graph below shows the significant amount of imports we get from the three countries being targeted for tariffs.1
Although US exports to Canada, China, and Mexico pale in comparison to US imports from these countries, the strain imposed by retaliatory tariffs can create the need for companies to make difficult choices. Businesses could try to source items from non-tariff locations, but that can delay production and add costs in establishing those new partnerships, which may exceed the cost of the tariffs anyways. Further, businesses can look to cut costs elsewhere to offset the additional tariff expenses. Cost cuts often lead to layoffs and reduced investment which can have a downstream effect on other industries and suppliers. In turn, the potential for job loss could weaken consumer confidence which typically leads to reduced spending. Lastly, companies will likely attempt to “pass on” the costs of tariffs to consumers via price increases that could further squeeze American consumers.
Furthermore, COVID shutdowns and transitions showed that corporate supply chains are delicate and could be disrupted by shifting tariff policies. Just as businesses struggled with shortages, delays, and rising costs during the pandemic, tariffs can similarly create bottlenecks by making key materials and components more expensive or difficult to source. These ongoing uncertainties complicate cost management strategies and could lead to lowered earnings growth as the cost of goods sold rises. As we entered 2025, the S&P 500 earnings growth expectations were 15% and have now been lowered to 11.5%, albeit ahead of longer-term averages, but ongoing uncertainties could lead to further downgrades.
While tariff policies create uncertainty and likely added cost that will be borne by both businesses and consumers, the actual effects on economic growth are still relatively uncertain. It is possible that the actual implementation of tariffs is short-lived, muted, or adjusted by other pro-business policies. It is also possible that tariff negotiations and implementation accomplish a better US trade balance and spur greater onshore production, which are goals for this administration. Further, inflation is a function of supply and demand, and while tariffs create a headwind to supply cost, demand changes or adjustments could offset the effects. Instituting tariff policies at this level is something that hasn’t been part of the American economy for some time, and so the uncertainty is something that we will have to contend with for now and the true ramifications won’t be perfectly clear ahead of time.
As the U.S. navigates this evolving trade landscape, the full impact of tariffs remains to be seen, with both risks and potential opportunities on the horizon. While higher costs and supply chain disruptions pose immediate challenges, the long-term effects will depend on how businesses, consumers, and policymakers respond. If companies successfully adapt through new sourcing strategies or operational efficiencies, some of the economic strain may be mitigated. However, if uncertainty persists and tariffs remain a prolonged fixture of trade policy, the consequences for growth, inflation, and market stability could become more pronounced. For now, businesses and investors must remain agile, prepared to adjust as trade negotiations and economic conditions continue to unfold. This is why it is important to consistently reassess risk, rebalance allocations, and have an allocation that has varying degrees of aggressiveness and protection in the plan.
1. https://www.nbcnews.com/data-graphics/trumps-proposed-tariffs-mean-us-trade-five-charts-rcna189122,
https://www.cfr.org/article/what-trumps-trade- war-would-mean-nine-charts
2. https://apnews.com/article/trump-tariffs-canada-mexico-china-643086a6dc7ff716d876b3c83e3255b0