Rapid City financial advisor Rick Kahler: As Trump’s tariffs rock the stock market, exercise patience
There’s nothing like a good sale to get people excited — unless that sale happens in the stock market. Instead of celebrating a chance to buy at a discount, investors panic, dump stocks, and brace for economic doom. That’s exactly what’s happening now as tariffs rattle financial markets.
On March 13, the S&P 500 officially entered the correction zone, plunging over 10% since its high on Feb. 19, wiping out trillions in value. This adds to recession fears for investors already spooked by escalating trade wars with China, Canada, and Mexico. While tariffs are marketed as protection for American industries, history and reality suggest otherwise.
Ronald Reagan once pointed out: “Protectionism almost always ends up making the protected industry weaker.” Tariffs act as a hidden tax. The government slaps fees on imports, companies pass the cost to consumers, and Americans either pay more for the same products or buy less.
Tariffs don’t just raise prices, they kill jobs. The U.S. tariffs on Canada and Mexico could eliminate 269,000 U.S. jobs; those on China could wipe out 73,000 more. Higher costs across global supply chains make it harder to stay competitive.
Economic growth takes a hit, too. Research shows tariffs shrink GDP by raising costs, discouraging investment, and reducing productivity. Both investors and businesses hate that kind of uncertainty. Financial markets thrive on stability, and tariffs introduce the opposite. Unpredictable trade policies discourage investment, raise inflation, and push up interest rates. That means businesses slow hiring, stock values drop, and recession risks rise.
Tariffs don’t just affect specific products, they contribute to inflation across the board. When import costs rise, businesses either absorb losses or pass them to consumers through higher prices, which means an overall rise in the cost of living.
Tariffs function like a tax on consumers, with households shouldering up to 100% of the added cost. These higher prices ripple through supply chains, increasing expenses for manufacturers and service providers. That puts pressure on wages, as workers demand higher pay to keep up with rising costs.
The Federal Reserve watches inflation closely when setting interest rates. If tariffs push inflation higher, the Fed may raise rates to slow things down. This makes borrowing more expensive, leading to slower growth and weaker stock performance. Tariffs don’t just make products more expensive; they risk triggering inflation, tighter monetary policy, and stagnation.
History repeatedly shows tariffs do more harm than good. A study analyzing five decades of data found that higher tariffs led to persistent declines in economic output and efficiency. A significant tariff hike can shrink GDP by up to 1.5% within four years. When trade partners retaliate, the damage compounds, cutting wages and weakening industries.
The Great Depression offers the most infamous example of a failed attempt to protect American businesses. The Smoot-Hawley Tariff Act of 1930 raised duties on hundreds of imports. U.S. trading partners hit back with their own tariffs. Exports plummeted, industrial production stalled, and unemployment soared.
When businesses cut hiring and investment due to trade instability, growth slows. Consumers faced with rising prices buy less. A policy meant to protect the economy could, ironically, send it into recession.
Current fear and uncertainty over the administration’s opaque financial objectives have pushed stock prices lower. Yet companies remain just as valuable today as they were a week ago. The question is whether investors treat these drops as opportunities to buy or reasons to panic.
For investors, the key lesson is patience. If history teaches us anything, it’s that the market eventually recovers. Those who resist panic selling tend to come out ahead. But for the broader economy, the damage from tariffs may take years to undo.
Rick Kahler, CFP, is a fee-only financial planner and financial therapist with a nationwide practice, Kahler Financial Group, based in Rapid City. His co-authored books include “Coupleship Inc.” and “The Financial Wisdom of Ebenezer Scrooge.”
Photo: public domain, wikimedia commons
