Impact of US tariffs on the stock market: what traders should watch

What are tariffs?

Tariffs are taxes imposed by governments on imported goods and services. They serve various purposes, such as protecting domestic industries, generating revenue, and influencing trade balances.

By increasing the cost of imported goods, tariffs can make domestic products more competitive. However, they can also lead to higher prices for consumers and potential retaliatory measures from trade partners.

How tariffs affect the stock market

Tariffs have a long history of shaking up stock markets – and not always in ways governments intended.

The Smoot-Hawley Tariff Act

The Smoot-Hawley Tariff Act of 1930 is one of the most notorious examples. Introduced during the Great Depression, this legislation significantly increased United States (US) import duties on over 20,000 goods.

While intended to protect American industries from foreign competition, it led to retaliation from trading partners, declining international trade volumes, and long-term declines in stock markets. Rather than boosting the economy, the act exacerbated the downturn, illustrating protectionism's unintended consequences.

The US-China trade war 2018-2019

More recently, the US-China trade war from 2018 to 2019 demonstrated how tariff disputes can unsettle global markets. The standoff involved reciprocal duties on hundreds of billions of dollars worth of goods, leading to investor uncertainty.

On 13 May 2019, markets reacted when China imposed tariffs on US$ 60 billion worth of US products. The Wall Street (Dow Jones)  dropped 617 points (2.4%), the US 500 (S&P 500 fell 2.4%, and the US Tech 100 (Nasdaq 100) declined 3.4%; major exporters like Apple, Caterpillar, and Boeing were significantly affected [i].

The situation worsened on 5 August 2019, when China allowed its currency, the Chinese yuan, to weaken beyond the symbolic 7-per-dollar level, widely seen as retaliation against US tariffs. Wall Street fell 850 points (3.2%) in one day, marking its worst day of the year [ii]. Technology stocks, especially those with exposure to Chinese markets and supply chains, saw severe sell-offs.

During this period, tariff disputes were not limited to the US and China.

The European Union retaliates against US tariffs

In 2018, the European Union (EU) retaliated against US tariffs on steel and aluminium by imposing duties on key American products, such as motorcycles, denim, and whiskey. Brands like Harley-Davidson faced immediate pressure, with share prices dipping as the company planned to shift some manufacturing overseas to avoid EU tariffs. This illustrates how trade policy can affect corporate strategy and investor sentiment quickly.

These episodes show that tariffs can rapidly change trading landscapes, unsettle markets, and force businesses to make difficult decisions. For investors, understanding this history can help navigate future market disruptions.

What’s been the impact of the 2025 tariffs so far?

In 2025, the US's reintroduction of aggressive tariff policies has once again stirred global markets. President Trump’s ‘Liberation Day’ tariffs, aimed primarily at China, have driven significant market movements and sector-specific impacts.

Countries and sectors affected

Market impact

• Volatility surge: the week ending April 11, 2025, was marked by extreme market volatility. Despite the US 500 achieving its best weekly performance since November 2023 [iv], the underlying market sentiment was uncertain, driven by erratic policy announcements and retaliatory measures from trade partners.
  
  
• Global economic concerns: Singapore downgraded its 2025 gross domestic product (GDP) growth forecast to 0% – 2%, citing the adverse effects of the US tariffs on global trade [v].
  
  

Sector-specific impacts

• Automotive industry: the imposition of a 25% tariff on imported vehicles and parts has strained automakers. Companies like Ford, General Motors, and Stellantis have reported increased production costs and potential layoffs [vi]. The complexity of global supply chains means temporary pauses or exemptions may not provide immediate relief.
  
  
• Pharmaceuticals: tariffs on pharmaceutical imports [vii], particularly generic drugs from India and China, are expected to affect profitability. While major drugmakers may absorb these costs in the short term, there are concerns about long-term effects on research and development investments.
  
  
• Technology sector: China’s retaliation, including halting exports of critical rare earth metals [viii], has disrupted supply chains for US tech companies. Firms like Microsoft and Apple face challenges in sourcing essential components, leading to potential product delays and increased costs.

How to manage risks and protect your portfolio

Tariff-induced market volatility can be unsettling, but by implementing sound risk management strategies, you can safeguard your portfolio and remain agile in changing market conditions. Here are four key approaches to consider:

1. Diversification: don’t put all your eggs in one basket

Diversification remains one of the most effective ways to reduce risk.

Rather than relying heavily on a single asset class or sector, such as tech or energy, spreading your investments across multiple industries, regions, and financial instruments can help cushion the impact of sector-specific shocks. For example, pairing equities with bonds, commodities, or even cash can help offset losses if one market turns bearish.

Diversification also applies geographically. With tariffs often affecting bilateral trade, global diversification can protect you from country-specific policy shifts. IG’s top tips to diversify your investment portfolio offer practical steps for building a more balanced portfolio.

2. Alternative investments: look beyond traditional assets

During market turbulence, alternative investments can offer stability. Real estate, private equity, hedge funds, and commodities such as gold or agriculture often behave differently from stocks and bonds.

For example, gold is historically viewed as a safe-haven asset during times of economic and geopolitical stress. Similarly, infrastructure and real estate investments can offer long-term income stability, even during stock market downturns.

Discover more in IG’s guide to the best 5 alternative investments to diversify your portfolio.

3. Risk management tools: use tech to stay one step ahead

Effective risk management isn’t just about what you invest in – it’s also about how you manage those positions. IG provides a suite of tools that can help protect your trades from unexpected market swings:

• Stop-loss orders: automatically close a trade when it reaches a certain level of loss to limit downside exposure
  
  
• Guaranteed stops: similar to stop-loss orders but guarantees execution at your chosen level – even during market gaps
  
  
• Limit orders: set your entry or exit at a specific price, giving you greater control over your trading strategy
  
  
• Options and derivatives: these can be used to hedge exposure in your broader portfolio or speculate in a more controlled way.

For a complete overview, explore the risk management guide.

4. Stay informed: knowledge is your best defence

In a fast-moving market, staying updated is essential. Tariffs are often announced with little warning, and their impacts can ripple through global markets almost instantly. Keep an eye on:

• Government trade announcements and policy changes
  
  
• Retaliatory measures from affected countries
  
  
• Quarterly earnings calls, especially in trade-sensitive industries
  
  
• Central bank responses to inflation and trade disruptions

Industries and sectors to watch during volatility

Considering countries and regions targeted by recent tariffs, certain sectors are more affected than others:

1. Automotive: facing direct impacts from tariffs on vehicles and parts, this sector is experiencing increased production costs and supply chain disruptions
   
   
2. Technology: dependent on global supply chains, tech companies are vulnerable to tariffs and export restrictions, especially concerning critical components
   
   
3. Pharmaceuticals: tariffs on imported drugs, particularly generics, may affect profitability and research  and development (R&D) investments
   
   
4. Energy storage: tariffs on battery components can increase costs for energy storage solutions, impacting the broader renewable energy sector
   
   
5. Commodities: fluctuations in commodity prices, influenced by tariffs and trade tensions, can affect sectors ranging from agriculture to mining.

Stocks to watch during volatility

The following stocks are currently gaining market attention. This list is for informational purposes only and should not be considered investment advice. To identify stocks that align with your trading strategy, conduct thorough research on company fundamentals and market conditions before making any investment decisions.

Ford Motor Company (NYSE:F)

As one of America’s largest automakers, Ford has already felt the sting of Trump-era tariffs, particularly on imported steel and aluminium, which raised production costs significantly.

With the 2025 tariffs bringing renewed pressure on global supply chains, Ford could again face higher input costs and pricing challenges. However, its push toward electric vehicle (EV) production and strong domestic manufacturing presence may offer some insulation.

Traders should watch how Ford adjusts its strategy in response to tariff-driven shifts in the automotive landscape.

Apple Inc. (NASDAQ:AAPL)

Apple’s reliance on a global supply chain makes it particularly vulnerable to tariffs on components imported from China and potential retaliatory export controls.

While the company has begun to diversify some production to countries like India and Vietnam, its core manufacturing hub remains China-centric. Any disruption could impact margins, product availability, and investor sentiment.

CSL Limited (ASX:CSL)

This Australian biotech powerhouse is a key player in plasma-derived therapies and vaccines. While less exposed to tariffs directly, CSL could benefit from pharmaceutical companies reshuffling supply chains to avoid trade barriers.

As the US and China increasingly prioritise domestic production, CSL’s global manufacturing footprint could offer competitive advantages.

BHP Group (ASX:BHP)

A global leader in mining and resources, BHP is highly sensitive to macroeconomic and trade trends.

Tariffs that affect demand for steel, such as those on Chinese exports, can ripple through to iron ore and metallurgical coal prices, directly impacting BHP’s bottom line. As the world’s second-largest exporter of iron ore, the company’s performance often mirrors global trade sentiment.

NVIDIA Corporation (NASDAQ:NVDA)

NVIDIA operates in the tech supply chain – an area under intense scrutiny in current US–China trade relations.

The chipmaker’s advanced GPUs are critical to artificial intelligence (AI), gaming, and data centres. While export controls and supply chain friction remain concerns, its dominant market position and ties to high-growth industries make it one to watch during this period of uncertainty.

• _{[i] Graeme Wearden, Trade war: Wall Street suffers biggest selloff since January after China hits back, The Guardian, 13th of May 2019. Available at: https://www.theguardian.com/business/live/2019/may/13/trade-war-investors-china-retaliation-us-tariffs-growth-stock-markets-business-live (Accessed 22nd of April, 2025).}
• _{[ii] Trade war fears send shudder through stock markets, BBC News, 5th of August 2019. Available at: https://www.bbc.co.uk/news/business-49234068 (Accessed 23rd of April 2025).}
• _{[iii] Harley-Davidson to make more motorcycles outside the US, BBC News, 25th of June 2018. Available at: https://www.bbc.co.uk/news/business-44604280 (Accessed 23rd of April 2025).}
• _{[iv] Filip De Mot, Inside one of the wildest weeks for markets in recent memory, Business Insider, 11th of April 2025. Available at: https://www.businessinsider.com/stock-market-today-sell-off-bond-yields-trump-trade-tariffs-2025-4#:~:text=The%20S%26P%20500%20surged%206,rocked%20by%20Trump's%20trade%20war (Accessed: 11th of April, 2025).}
• _{[v] Lutfil Jumadi, Singapore downgrades 2025 GDP growth forecast to 0 to 2%, citing impact of Trump tariffs on global trade, Channel News Asia, 14th of April 2025. Available at: https://www.channelnewsasia.com/singapore/singapore-economy-gdp-2025-q1-trump-tariffs-mti-5053721? (Accessed: 14th of April 2025).}
• _{[vi] Alexa St. John, As Trump considers auto tariffs pause, parts exemptions could be key for US industry, AP News, 12th of April 2025. Available at: https://apnews.com/article/trump-tariffs-automakers-supply-chain-cost-car-buying-1e92a9dc09294234459fcf4acea3e788 (Accessed: 14th of April 2025).}
• _{[vii] Deena Beasley, Pharma companies expected to absorb any tariff hit in short term, Reuters, 16th of April 2025. Available at: https://www.reuters.com/business/healthcare-pharmaceuticals/pharma-companies-expected-absorb-any-tariff-hit-short-term-2025-04-16/? (Accessed 16th of April 2025).}
• _{[viii] Keith Bradsher, China Halts Critical Exports as Trade War Intensifies, New York Times, 13th of April 2025. Available at: https://www.nytimes.com/2025/04/13/business/china-rare-earths-exports.html# (Accessed 14th of April 2025).}