What are tariffs and how do they affect me?

Lately there’s been a constant stream of news about tariffs, trade agreements, or other political changes. That’s because right now, the United States is increasing tariffs on most products imported other countries. This is prompting other countries to add or increase their own tariffs on American goods. 

Basically, a tariff is a tax—but with one key difference. Instead of a sales tax, which you pay when you buy a new shirt online or from a store, a tariff is paid by a company. And because companies have to come up with the money to pay the tariff, they often pass on the amount—or portion—of the tariff to the buyer. 

For example, let’s say a company in the United States orders ice skates from a company in Canada. Because the federal government in the United States announced a 25% tariff on Canadian goods on March 4, 2025, the American business owner has to pay 25% more for the order. That means that if a pair of skates originally cost $100, the 25% tariff would increase the cost to the American business to $125. Although they try hard not to, businesses usually have to pass the cost of the tariff on to the consumer. In this case, the ice skater in the United States ends up paying more for the skates to cover the cost of the tariff.

Why do tariffs affect the stock market?

New tariffs are being imposed and increased quickly, and so you’re also seeing the  stock market fluctuate either mildly or wildly, depending on the day. That’s because the stock market likes certainty. And when there’s so much uncertainty about what will be announced next or how businesses around the world will respond, that usually leads to rapid changes in the stock market, which referred to as market volatility. 

Market volatility is tracked by watching stock indexes, such as the Dow (also referred to as the Dow Jones Industrial Average or DJIA), the S&P 500 Index, and the NASDAQ. The different indexes reflect how the market is performing. Generally, when the economic or political situation is uncertain or experiences a dramatic change, stock prices tend to go down. And then, when things start to settle, so does the market, and prices go back up. Even though this is all part of the normal market cycle—it can feel quite unnerving. 

Long-term investing vs. market reactions

The stock market constantly cycles up and down—in response to external events, politics, regulations—any number of factors. Two recent examples illustrate that even when the stock market experiences a big fall, it’s always been resilient over time. 

• Even following the steep drop at the beginning of great recession in 2008, the market was growing beyond pre-recession levels in 2012. 
• More recently, the market dropped at the start of the COVD-19 pandemic but was back above pre-pandemic levels in 2020.¹

During less dramatic times, the value of the stock market goes up and down, daily, weekly, and monthly, but over time, has continued to go up.¹

What does market volatility mean for my retirement investments?

When stock market values go down, you’re likely to see the value of your retirement investments go down as well. But your investments likely suffer the loss if you sell at the lower prices. If you don’t need to access your retirement investments today, you’re may be better offer leaving your investments as they are, and not worrying about the short-term ups and downs in the market and in your retirement account balance. 

Long-term investing, such as in your retirement plan, requires a long-term focus and a diversified, age-appropriate strategy. A diversified strategy mixes your investments among different types, so you don’t have all your eggs in one basket. And an age-appropriate strategy means that the farther you are from retirement, the more risk—and potential reward—you can have in your investments. 

Managing tough times ahead

With so much news breaking and the stock market reacting, it can be easy to panic and worry about your retirement savings. But remember that your retirement savings is different than any shorter-term investments you might have. Whether you’re retiring in 10 years or you just started working, you’re saving for the long term, and that means there will naturally be ups and downs with your investments. So take a look at the bigger picture and try to ignore the day’s headlines.  

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