Through 2025, tariffs created volatility, upsetting markets and leaving investors and trade partners questioning what would happen. The Supreme Court overturned many of the tariffs, the Trump administration announced new approaches to tariffs, and the VIX started edging above normal again. This article explains how to understand tariff effects and manage the potential implications to improve the strength of your portfolio.
What Are Tariffs And How Do They Work?
Tariffs are a form of taxation on imported goods meant to help control trade between countries and raise government revenue. They can vary greatly by product and the exporter’s country of origin. Importers pay a given percentage of the imported goods’ value to the federal government.
Tariffs can present a barrier to foreign products and materials by making them more expensive, in turn protecting domestic industries. They can also encourage trade through calibrated levels and international negotiations. When tariffs are greater than zero, they can increase the price of consumption or lower business profits, potentially leading to increased inflation and a slower economy.
The Tariff Landscape In 2026: What Has Changed?
To understand tariffs in 2026, you have to look at two periods: tariffs before and during 2025. For decades, the U.S. effective average tariff across product categories and countries of origin was low, from about 4% in 1990 to 1.5% up to 2023 except for a spike to 13.8% in 2019 during Donald Trump’s first administration and tariff hike. The average rate at the very beginning of 2025 was 2.6%, according to the Federal Reserve Bank of New York. The average for that year was between 16.4% and 17.4%. That was the highest rate since 1935.
Tariff rates for 2026 are now thoroughly up in the air. The Supreme Court ruled that for one class of tariffs, Trump lacked the authority to impose them. He then added an across-the-board 10% additional tariff, raising it to 15% the next day, using an argument that also might not pass legal scrutiny.
How Tariffs Impact Corporate Earnings
“Tariffs clearly drive the prices up for importers,” said Aoifinn Devitt, managing director of global wealth at Moneta. “This affects domestic U.S. corporations to the degree that they are dependent on imports — whether for parts … or to a broader degree [like full products].” In a way, tariffs stay invisible until they change significantly because everyone gets used to them.
Importers might seek an exporter to help cover the cost by lowering prices, passing on increased expenses to customers, or absorbing the costs themselves by reducing their own profits. “Around summertime, you should start to notice the effect of tariffs less,” said Brandon Zureick, senior managing director at Johnson Investment Counsel. He added, “When we’re thinking of what 2026 might bring, our outlook was we might start to see some broadening both in the economy as well as markets.” And Zureick added that tax refunds from the One Big Beautiful Act passed in 2025 should offer additional help to offset tariff costs. Also, Tony Roth, chief investment officer for Wilmington Trust, noted, “Corporate profit margins are at all-time highs, which suggests the tariffs are being passed on to consumers.”
Market Volatility And Investor Sentiment
The VIX, the stock market’s so-called fear gauge, has a value of less than 20 in stable times. In 2025, it jumped to 46.98 on April 8. High volatility can offer profit opportunities and still make sober planning and investing difficult. The VIX calmed into late spring and summer, then started jumping again in the fall. Then came 2026. Starting around Jan. 20, the VIX started flirting with crossing the 20 mark again.
On Feb. 26, the American Association of Individual Investors, which tracks investor sentiment, said investor pessimism was increasing. Bullish sentiment with expectations of stock prices rising over the next six months was down 1.3 percentage points to 33.2%. That was below the historical average of 37.5% for the second time in 13 weeks. Bearish sentiment, with expectations that stock prices would fall over six months, was up 2.8 percentage points to 39.8%, above the historical average of 31.0% for the sixth time in 13 weeks. The bull-bear spread hit -6.6%, below the historical average of 6.5% for the third time in 13 weeks.
Uncertainty about trade wars and tariff adjustments can dampen investor excitement. Data from S&P Global Market Intelligence shows that the S&P 500 index has risen and came close to a record 7000 value but has started to decline. There is no way to know whether the decline might continue. If it does, that would likely last only a few months through a year but still potentially have an impact on anyone’s portfolio.
How Different Sectors Are Impacted
Parts of the stock market differ in how they react to tariffs. “It’s turning out to be sector specific,” said Rodney Sullivan, executive director of the Mayo Center for Asset Management at the University of Virginia Darden School of Business. “The import-heavy industries have been in the direct path of the storm,” Zureick said. He pointed to automobiles, big-ticket items that rely on imported raw materials, electrical components, consumer electronics, furniture, and apparel.
Others can gain an edge. “You’re seeing certain areas of the economy benefit from the tariffs where smart manufacturing can exploit AI to bring things on shore,” Roth said. That can give those manufacturers a financial advantage over international competitors.
“The geography of supply matters, too,” said Lee Branstetter, a professor of economics and public policy at Heinz College at Carnegie Mellon University. The USMCA (U.S.-Mexico-Canada Agreement) trade agreement provides favorable rates to imports from Canada and Mexico. “There’s an enormous incentive right now to switch from Chinese suppliers to Mexican suppliers,” he said.
Risks To Your Portfolio From Tariffs
Multiple potential impacts can affect a portfolio. Too much concentration in vulnerable sectors can put someone’s holdings at risk, especially as the future of tariffs remains uncertain. Ongoing developments could result in retaliatory tariffs, which could negatively affect exports of U.S. companies, affecting their earnings. Anyone with exposure to global equities, where the U.S. is an important market for those companies, could find tariffs affecting those revenues and earnings. Uncertainty can affect market activity.
And yet, it is important not to become overly worried. Katie Klingensmith, chief investment strategist at Edelman Financial Engines, noted that “there are so many different factors that are driving earnings,” and, so, earnings. Macroeconomic conditions, government policies, earnings concentrations in sectors like AI, and market trends. Too close a focus on one risk can cause investors to miss other, possibly more important, ones.
How To Position Your Portfolio For A High-Tariff Environment
“Resilience should be the 2026 focus,” Klingensmith said. “Staying diversified, continuing contributions, and reviewing withdrawal strategies for retirees can help manage volatility in a changing trade environment. We are very committed to a really broadly diversified portfolio and really, really being systematic about it.” That includes understanding how different kinds of companies interact, so the total combination makes sense.
Part of diversification includes understanding the detailed nature of companies in a portfolio and what they did. Klingensmith noted that automobile brands might manufacture cars in the U.S. and other countries, changing their risk profiles. “It becomes all the more important to have that really thoughtful diversification,” she said. Zureick suggested, “Be well diversified, both up and down market cap size, some international exposure, and some high-quality bonds sprinkled in.”
Also, investors should keep actively building their portfolios and avoid trying to time the market. Ups and downs, for many reasons, are part of equity investment. But, as Morningstar has shown, markets always come back. The 1929 crash and Great Depression did recover, although it took seven years, and then an additional eight for its spill into World War II.
Bottom Line
Tariffs can have significant impacts on equity investing. But, so far, stocks have not suffered greatly. The effects of tariffs on equities are complicated. Research into companies can help give insight into which investments might be more resilient. Diversify holdings, look at how company types interact economically, and keep investing. Even if things go badly for a time, they will recover.
Frequently Asked Questions (FAQs)
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