Tariffs, Trade Wars & Your Portfolio: What Every Smart Investor Should Know

Tariffs Carry Deep Economic, Geopolitical, and Investment Implications

The word “tariff” gets thrown around a lot on the news. Politicians argue about it, and economists publish long-winded reports. Most people simply feel the effects – higher prices, more expensive cars, restless markets – but never fully understand what’s going on behind the curtain.

Joel Garris, host of the Dollars & Sense podcast, recently pulled back the curtain and offered clarity on one of the most misunderstood tools in economic policy. As he put it, “a tariff is essentially a tax on a good that is imported from another country.” Straightforward, right?

Well, not quite.

There’s more to it than just taxes. Tariffs carry deep economic, geopolitical, and investment implications – many of which directly impact portfolios, especially for those nearing retirement.

What are Tariffs and Why Do They Matter?

If you are trying to navigate inflation, global trade tensions, or smart investing during volatile times, then you need to understand tariffs.

A tariff is a government-imposed tax on imported goods, designed to influence pricing, protect domestic industries, and shift international trade dynamics.

Often used in trade wars or negotiations, tariffs directly impact:

• consumer prices
• business profit margins
• global supply chain economics
• international diplomatic leverage
• inflation and long-term investment performance

Whether you’re researching what are tariffs or how tariffs affect the economy, you’re tapping into one of the most high-impact economic tools in use today. Decisions around import taxes, duties, and trade restrictions aren’t just political – they shape portfolio strategies, affect retirement planning, and determine how businesses stay competitive in a rapidly evolving marketplace.

What Exactly Do Tariffs Do?

Tariffs aren’t new, and they’re not simple. “They can ultimately serve any one of four motivations,” explains Joel. Each reason is rooted in history, strategy, or both.

Let’s walk through those 4 pillars:

1. Decoupling: redirecting supply chains away from countries deemed problematic or too dominant.
2. Rebalancing: addressing lopsided trade deficits by boosting domestic production.
3. Negotiating Tool: applying economic pressure to extract concessions or policy changes.
4. Funding Mechanism: generating government revenue – “Before World War One…it was all tariffs,” Joel noted.

Each of those has consequences. Some intended, others not.

The $1.1 Trillion Trade Deficit Nobody Wants to Talk About

Most Americans don’t realize the country has run a trade deficit every year since the 1970s. In Joel’s words, “we buy way too much junk, to put it nicely.”

The result? A $1.1 trillion trade deficit.

That’s a problem – and a massive one at that. Every imported good without a matching export contributes to an imbalance that weakens domestic industries and expands reliance on foreign producers.

Want a concrete example.

Think cars.

Joel pointed out the stark difference in the video above: “Europe’s tariffs on our cars are typically like 10%. A European car coming into the U.S., the tariff is 2.5%.” Four times more expensive for an American-made car to be sold there than vice versa. If fairness is the goal, the scoreboard reads lopsided.

Tariffs Stir Up More Than Just Trade Tensions

Tariffs don’t exist in a vacuum. They create ripple effects that reach every sector.

One such consequence: inflation.

“If costs are going up,” Joel said, “then things cost more. That’s called inflation.” It’s not theoretical. It’s visible at the grocery store, in car lots, on monthly bills. When imported goods get pricier, companies must either raise prices or take a hit to margins.

In reality, they usually do both.

Joel broke it down further: “more often than not, that cost is divided between consumers and businesses.” Shoppers feel it at checkout. Companies feel it in the quarterly reports.

Navigating Volatility: What Tariffs Mean for the Market

Markets don’t like uncertainty. Tariffs create it by altering expectations. Investors react quickly – sometimes too quickly.

As Joel explained, “Week before last… the S&P 500 had declined 10% from its record peak on February the 19th.” That’s the technical definition of a correction. “Happened within 16 trading days.” Fast? Yes. Unprecedented? Not really. “Didn’t even put it in the top ten,” Joel noted. It ranked 11th in terms of speed.

Market corrections come and go. History shows they’re part of the process. “I’ve been doing this for 26 years… seen 13 different corrections.” The average investor sees one every two years. Painful but not permanent.

According to S&P Global, corrections tend to last about four months on average, while bull markets often run much longer, sometimes stretching over a decade

So, What’s a Smart Investor to Do?

Understanding tariffs isn’t about picking sides in a trade war. It’s about adjusting strategy.

Joel emphasized the importance of sticking with companies that hold up under pressure—those with “sustainable competitive advantages.” Think firms that can weather storms, adapt, and keep delivering value to shareholders.

He also advised paying attention to geography: “Diversifying across different geographies and sectors… some will have varying tariff sensitivity.” Not every country is entangled in the same battles. Some, like Vietnam and Thailand, have benefited from companies moving production out of China.

Fidelity Investments has echoed this viewpoint, highlighting Southeast Asia’s increasing importance in global supply chains post-pandemic

Domestic-Focused Sectors May be Your Best Friend

Certain industries stand relatively shielded from the chaos of global trade—especially those that focus inward.

Banking, utilities, healthcare, and financial services don’t rely heavily on imports or exports. Joel described this clearly: “If I’m a company that generates most of my revenue here in the U.S., then the tariff thing isn’t really that big of an issue.” Less exposure equals less volatility from international policy shifts.

What About Tech? Cloud Computing Is in the Clear

Tariffs often target physical goods—cars, steel, microchips. Services and digital platforms aren’t as vulnerable.

Joel mentioned that companies with adaptable supply chains or cloud-based products “aren’t going to be as subject to tariffs.” Cloud computing, cybersecurity, and SaaS (Software as a Service) businesses continue growing regardless of border tensions. In fact, Gartner projects that worldwide public cloud spending will reach over $679 billion in 2024.

That’s an opportunity. Investors seeking resilience might look to digital infrastructure and software ecosystems.

VAT, Taxation and the Hidden Costs of Global Trade

Tariffs aren’t the only way countries tilt the playing field. Europe, for instance, uses a Value Added Tax (VAT) during production.

Joel explained: “In the case of the EU… VAT tax into account actually sort of implies a much larger tariff of about 25%.”

Many Americans overlook VAT because it’s embedded in pricing, unlike U.S. sales tax. However, its cumulative effect increases costs at every stage of production. And yes, that makes imports even less competitive.

According to the OECD, 168 countries use VAT systems, and they account for a significant percentage of revenue in many economies.

Thinking Long Term: Patience Beats Panic

Quick reactionary moves tend to hurt investors more than tariffs ever could. Joel reminded listeners, “Those periods of decline are much shorter than those periods of expansion.”

Time heals market dips.

Chasing headlines won’t yield reliable gains. Instead, focusing on quality businesses, sector diversification, and patience tends to outperform. Especially for investors over 50, who need stability more than thrills.

Final Thought: Understanding the Game, Not Just the Rules

Joel said it best: “The tariff conversation is certainly not an easy to follow or easy to understand issue.” But that’s no excuse to ignore it.

Trade policy, tax structures, and global competition aren’t dinner-table topics for most. But knowing how they shape the investing landscape can make the difference between a retirement fund that grows and one that struggles.

Tariffs change supply chains, alter business models, and provoke inflation. However, smart investors—those who educate themselves—can still find opportunities and avoid pitfalls.

Economic policy may feel like a battlefield. Fortunately, with perspective, strategy, and the right portfolio construction, there’s a path forward.

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