Tariffs, trade wars, and the long‑term investor

What are tariffs and how do they work?

Tariffs are essentially taxes on imported goods. When a country imposes a tariff, a foreign product crossing its border incurs an extra charge, paid by the importing company to its home government. For example, a 20% tariff on steel means an importer must pay an additional 20% of the steel’s value in tax. The immediate effect is to raise the cost of foreign goods, making domestic products comparatively cheaper. Governments have long used tariffs to protect homegrown industries by encouraging consumers to buy local products. In theory, this shield can nurture “infant industries” until they grow competitive internationally - a strategy advocated since the days of Alexander Hamilton in the 18th century. However, tariffs come with side effects.

Who actually pays?

Although tariffs are levied on importers, studies show businesses often pass the higher costs to consumers in the form of pricier goods. This can contribute to inflation and reduce consumers’ purchasing power. Tariffs can also provoke retaliation from trading partners, leading to a cycle of rising trade barriers on all sides. In short, while tariffs can be a tool to influence trade flows or raise government revenue, they tend to reduce overall trade volumes, increase prices, and distort markets – which is why, after World War II, most advanced economies moved away from high tariffs in favour of freer trade.

Tariffs: short-term bargaining chip or long-term policy?

Are tariffs meant to be a quick negotiating tactic or a lasting fixture of policy? The answer is a bit of both. In modern practice, tariffs are often employed as a short-term bargaining chip - a pressure tactic in trade negotiations. A government might slap tariffs on a partner’s exports to gain leverage and extract concessions on trade terms. We’ve seen this approach in recent years: tariff threats and rapid escalations used to bring trade partners to the table. U.S. officials have explicitly viewed tariffs as “defensive” measures to force changes in trading partners’ behaviour (for instance, addressing perceived unfair practices or trade imbalances). When successful, such brinkmanship can lead to a new agreement and the tariffs may be rolled back.

However, tariffs can also linger and solidify into long-term policy. If negotiations fail or political winds favour protectionism, temporary tariffs might remain in place for years. History provides cautionary examples: the infamous Smoot–Hawley Tariff Act of 1930 was intended to briefly protect U.S. farmers during the Great Depression, but it triggered global retaliation and a collapse in world trade. Rather than a short-lived measure, it took years (and a world war) before those tariffs were fully unwound. Even today, some U.S. tariffs date back decades – for instance, a 1960s tariff on imported trucks still exists.

In general, economists warn that while politically motivated tariff shocks might serve short-term goals, they tend to undermine long-term economic resilience. Tariffs introduce uncertainty and inefficiency that can weigh on growth the longer they persist. For this reason, many tariffs used as bargaining tools come with built-in sunset clauses or are gradually reduced through subsequent trade deals. The bottom line: tariffs can be a double-edged sword - useful as a short-term negotiating tactic, but damaging if entrenched for the long haul.

Why should long-term global investors care?

Even if tariffs sound like an abstract policy matter, international investors should pay attention. Tariffs and trade wars can impact the global economic landscape, which in turn affects corporate earnings, market sentiment, and investment returns. Here are a few reasons long-term investors, especially those with globally diversified portfolios, should care:

• Economic growth and corporate profits: Widespread tariffs act like a tax on the entire economy. They raise costs for importers and manufacturers (who often rely on global supply chains), potentially squeezing profit margins. If U.S. firms must pay more for Chinese components due to tariffs, for example, their costs rise and earnings may fall. Tariffs can dampen business investment as well - companies become hesitant to build factories or make long-term plans when trade policies are in flux. This drag on investment and higher cost base can lead to slower economic growth over time, which is not favourable for equities. One analysis noted that uncertainty around tariffs and ever-changing trade policy “will hit investment levels, return on capital and overall growth globally,” with the U.S. economy bearing much of the brunt. In short, protracted trade conflicts can erode the growth that fuels stock market gains.

• Market volatility and sentiment: Financial markets dislike uncertainty, and tariff battles introduce plenty of it. We’ve seen how markets react to trade war news: tariff announcements or heated rhetoric can spark sudden sell-offs, while signs of truce or deal-making ignite relief rallies. For instance, when the U.S. and China reached a temporary tariff truce this week, global stocks surged and Wall Street indices hit multi-month highs on the news. Conversely, escalations in the trade war have triggered bouts of volatility and flight-to-safety trades (with investors rushing to assets like gold or the dollar). Long-term investors need to tolerate this short-term turbulence. If you check your portfolio on a day when new tariffs are announced, you might see a dip in international stocks or in companies exposed to global trade. Having a balanced, diversified portfolio can help cushion these blows, but being mentally prepared for volatility is key. The market’s knee-jerk reactions to tariff news are a reminder that even long-term investors are not completely insulated from geopolitical risk.

• Sector and regional winners/losers: Tariffs can also reshuffle the deck for certain industries and countries. For example, tariffs on imported steel benefit domestic steel producers (their foreign competition becomes pricier) – but they hurt U.S. automakers or construction firms that must pay more for steel inputs. An export-heavy economy facing tariffs (say, Germany’s auto industry hit by U.S. auto tariffs) might see its stocks underperform, while a competing country not subject to those tariffs (perhaps Japan or Korea) could capture market share. Emerging markets that become alternate manufacturing hubs (such as Vietnam or Mexico, which in some cases gained from companies diversifying away from China during the trade war) might experience investment inflows. A globally aware investor will want to monitor these shifts. Tariffs create relative winners and losers across markets - and a long-term investor, by being broadly diversified, stands to own a bit of both, reducing the risk of being on the wrong side of a trade upheaval.

In summary, tariffs and trade disputes affect the macroeconomic backdrop, from growth and inflation to corporate decision-making, and thereby filter into asset prices. They introduce an “uncertainty tax” on the economy that can weigh on investments. Long-term investors should care not because they need to react to every headline, but because understanding these forces helps one stay disciplined. By recognizing that a trade war might shave a few percentage points off global growth or temporarily jolt the stock market, investors can set realistic expectations and avoid panic-driven decisions. As Brigantia often emphasizes, maintaining a well-diversified, low-cost portfolio and a long-term perspective is the best defense against such short-term disruptions.

The current U.S.-led trade war: what’s happening?

Background: The ongoing “trade war” largely refers to a series of tariff exchanges initiated by the United States starting in 2018 and affecting multiple countries. Frustrated with trade deficits and alleging unfair practices, the U.S. under President Donald Trump broke with decades of free-trade policy and imposed tariffs on hundreds of billions of dollars’ worth of imports - most notably from China. China, in turn, retaliated with its own tariffs on U.S. exports. Before long, other countries were drawn in. The U.S. applied import taxes globally on steel and aluminum for “national security” reasons, hitting close allies like Canada, Mexico, and the European Union. Those allies answered with counter-tariffs on U.S. goods, from American bourbon to motorcycles. By late 2019, U.S. tariffs on Chinese goods averaged nearly 20% (up from just 3% before the trade war) and virtually all Chinese imports were under tariff. China likewise raised duties on most U.S. exports. The clash between the world’s two largest economies marked the most significant disruption to global trade in decades.

Short-term truces and deals: Despite heated exchanges, the trade war has seen periodic ceasefires. In late 2019, Washington and Beijing reached a preliminary “Phase One” agreement. Signed in January 2020, this deal put further tariff hikes on hold and led China to pledge increased purchases of U.S. goods (particularly farm products). It was a partial easing: some tariffs were reduced or exempted, but the majority of tariffs remained in place. (Indeed, China ultimately fell short of the purchase targets set in the deal, underscoring that deeper issues, like industrial policy and technology transfer, were left unresolved.) Around the same time, the U.S. negotiated a new North American trade pact (the USMCA) with Canada and Mexico, which replaced NAFTA. As part of that deal, the U.S. lifted tariffs on its NAFTA partners, defusing tensions on its northern and southern borders. With Europe, a tentative truce emerged by 2021: the U.S. dropped the steel and aluminium tariffs on EU countries, and both sides paused a brewing dispute over auto tariffs. These moves showed that some tariffs were indeed leveraged as bargaining chips - removed once the broader trade negotiation achieved a satisfactory outcome.

The nature of U.S. tariffs (especially toward China): The U.S. tariffs in this conflict have been sweeping. On China, they initially targeted strategic sectors (aerospace, high-tech machinery) but eventually expanded to consumer goods (electronics, apparel, etc.), covering roughly $370 billion of annual imports. Most were set at rates of 10% to 25%. China’s retaliation targeted U.S. agriculture (soybeans, pork), autos, and other products, aiming to pressure American exporters. Uniquely, the Trump administration justified many tariffs under old laws (such as Section 301 for unfair trade practices, and Section 232 citing national security) - a departure from the usual WTO-governed process. This unilateral approach heightened trade partners’ anger. U.S. tariffs on allies (steel/aluminium) were particularly controversial, as partners like the EU and Canada felt insulted by the “national security” rationale. In response, those allies imposed their own tariffs but also took the U.S. to the World Trade Organization. By 2020, the WTO declared the U.S.’s China-specific tariffs violated global trade rules, though enforcement of that ruling remains uncertain.

Countries affected: China has been the primary target, but not the only one. Besides Chinese and NAFTA goods, U.S. tariffs also hit European products (e.g. a short-lived tariff on French wine amid a digital tax dispute, and planned tariffs on EU cars which were suspended). India saw its preferential trade status revoked. Even allies like Japan and South Korea had to navigate U.S. pressure on trade issues (for example, agreeing to export quotas or new bilateral trade agreements). In essence, the U.S. signaled that no country was entirely exempt from tariff pressure if American interests were at stake - a shock to a global system used to the U.S. championing free trade. This U.S.-led push for “fair trade” over free trade became a hallmark of the late 2010s.

Current status: Trade tensions continue to evolve. Joe Biden, who took office in 2021, largely left the Trump-era tariffs intact, using them as inherited leverage while pursuing negotiations. Rather than undo the tariffs, the Biden administration launched other tools (like export controls on sensitive technologies to China) and worked with allies to address grievances collectively. This kept tariffs in place through 2022–2024, even as businesses on both sides lobbied for relief. Enter 2025: following the U.S. elections and Donald Trump's re-election, a renewed push on the trade war emerged. In early 2025, the conflict dramatically escalated - the U.S. announced steep new tariffs on virtually all Chinese imports, and China retaliated in kind. Tariff rates that were once 10–25% skyrocketed into the triple digits on certain goods, an almost unheard-of level among major economies. This escalation raised alarm bells about global stagflation risks and sent markets reeling. The good news is that at the time of writing, both sides moved back to the negotiating table. High-level talks produced a temporary truce: the U.S. agreed to roll back its newest tariffs from punishing highs down to about 30%, and China likewise cut its retaliatory tariffs for a 90-day period. An economic dialogue was established to seek a more lasting settlement. Global stocks rallied on the pause in hostilities, reflecting hope that cooler heads might prevail.

Still, this ceasefire is fragile. The fundamental issues, from market access and intellectual property to geopolitical rivalry, remain unresolved. Negotiations are ongoing, but uncertainty lingers. As investors, it’s important to recognize that the trade war is not “over” - it’s an evolving story. Tariffs have proven to be more than a short-term bluff; many have become a semi-permanent feature of the trading landscape while we await a comprehensive U.S.-China accommodation (and a broader rebalancing of global trade rules). In the meantime, businesses have been adapting (redirecting supply chains, seeking new markets) to cope with this new normal of elevated trade barriers.

Historical parallels: lessons from past tariff conflicts

Today’s trade tensions may feel unprecedented, but history rhymes. Past episodes of tariff usage and trade conflict can shed light on the current environment:

• The Smoot–Hawley tariff and the Great Depression (1930s): The Smoot–Hawley Tariff Act stands as a cautionary tale of overusing tariffs. Enacted in 1930, it raised U.S. import duties to record levels on over 20,000 goods, in a bid to protect American farmers and industries during the early Great Depression. The result was disastrous. U.S. trading partners retaliated en masse - more than 20 countries slapped high tariffs of their own within two years. Global trade ground to a halt, plunging by an estimated 65% in the ensuing years. Instead of rescuing the economy, Smoot–Hawley deepened and prolonged the Depression, as export markets dried up and prices soared for consumers. This period vividly demonstrated how tit-for-tat tariffs can create a “lose-lose” spiral. Chastened by the experience, U.S. policymakers reversed course. From the mid-1930s onward, the U.S. began negotiating reciprocal trade agreements that lowered tariffs, and after WWII led the creation of a multilateral trading system (GATT, later the WTO) that dramatically reduced global tariff barriers. The post-WWII liberal order was built on the idea that avoiding trade wars would foster prosperity and peace. For roughly 70 years, tariffs steadily fell and global trade grew - a stark contrast to the recent protectionist flare-up. The Smoot–Hawley episode is often cited by economists warning against aggressive tariffs: it’s a reminder that wide-ranging, prolonged tariffs carry heavy economic costs and can be very hard to unwind once other nations retaliate.

• U.S.-Japan trade frictions (1980s): In the 1980s, the United States faced huge trade deficits and a rising economic challenger in Japan - a situation frequently compared to the U.S.-China dynamic today. American industries (from automakers to electronics firms) felt undercut by Japanese imports and accused Japan of unfair trade practices. In response, the Reagan administration adopted a more protectionist stance than any since the 1930s. The U.S. pressured Japan through a mix of tariffs and quotas. For example, it imposed Voluntary Export Restraints (VERs) limiting the number of Japanese cars that could be shipped to the U.S., effectively a quota that was equivalent to a tariff over 60% on those autos. It also slapped a 100% tariff on certain Japanese electronics at one point, to retaliate against alleged chip-dumping. Japan, reliant on the U.S. market and allied in the Cold War, bowed to many U.S. demands – resulting in a slew of trade agreements (over 100 different deals and understandings) opening its market to more U.S. goods and restraining its exports. Despite these drastic measures, one irony stands out: the U.S.–Japan bilateral trade deficit never really went away. It remained large throughout the 1980s and into the 1990s, as American consumers continued to buy Japanese products and structural economic factors persisted. Over time, market forces (and Japan’s own economic troubles in the 1990s) did more to rebalance trade than tariffs did. What lessons does this hold for today? There are clear parallels between the 1980s and now: a U.S. anxious about losing its technological edge; political pressure to get “tough” on a trade partner; and a series of deals that alleviate some friction without solving the underlying imbalance. Many observers see a déjà vu in the U.S.-China trade war. Like Japan then, China runs a trade surplus with the U.S. and has been accused of unfair practices. But unlike Japan, China is a much larger competitor and a geopolitical rival, which complicates the conflict. The 1980s show that selective tariffs and managed trade agreements can ease tensions temporarily, but they may not fundamentally change trade patterns if broader economic forces (savings rates, consumer preferences, currency values) are driving imbalances. They also show that even when a trade war is averted (the U.S. and Japan never fully “broke” trade relations), the threat of tariffs can linger for years.

• Post-war liberalization and its unravelling: It’s worth noting that the period from roughly 1945 to 2016 was characterized by a general move toward lower tariffs and trade liberalization worldwide. Through rounds of negotiations, average global tariffs fell to historic lows, spurring the era of globalization that benefited many multinational companies and investors. This long-term context makes the recent tariff battles stand out. We are essentially seeing a partial reversal of the post-WWII trend - a shift from free trade back toward managed trade. The historical question is whether the current protectionist turn is a short-lived deviation or a longer-term change in regime. Past episodes (like the 1930s or 1980s) suggest that while protectionism can surge in response to economic stress or geopolitical rivalry, there is often a reversion to cooperation once the costs become apparent. Investors can take some solace that global trade frameworks (WTO rules, etc.) still exist, acting as guardrails to prevent outright collapse of trade. History shows that fully unfettered trade wars (as in the 1930s) are so damaging that nations usually find a way back to the negotiating table.

In comparing past and present, one clear lesson emerges: tariff conflicts eventually require compromise. Whether it was the Reciprocal Trade Agreements Act in 1934 to start undoing Smoot–Hawley, or the Plaza Accord in 1985 to address U.S.-Japan tensions (through currency realignment rather than tariffs), history tells us that prolonged trade hostilities tend to end with a negotiated settlement or a new framework. Long-term investors can take a nuanced view - understanding that while history doesn’t repeat exactly, it often rhymes. The current U.S.-China standoff has echoes of past trade dramas, but its resolution (or lack thereof) will chart new territory in an interconnected 21st-century global economy.

Possible outcomes: what’s next and what it means for investors

How might the current trade tensions play out from here? Several scenarios are on the table, and each carries implications for global investors:

• Scenario 1: lasting truce and gradual resolution – a positive outcome. In a bullish case, the U.S. and China (and other affected partners) could strike a broader agreement that meaningfully rolls back tariffs. This might happen in phases - building on the temporary ceasefire, negotiators could address core issues step by step, removing tariffs as trust is rebuilt. A comprehensive deal might not solve every sticking point, but it could establish rules on technology transfer, intellectual property protection, and fair market access that both sides can accept. For international investors, such a de-escalation would be welcome news. Lower tariffs would reduce costs for companies and likely boost global trade volumes and economic growth. Importantly, a resolved trade war would remove a significant cloud of uncertainty hanging over markets. Businesses could confidently invest in supply chains and expansion without fear of the next tariff hike. We would expect improved investor sentiment, potentially a rise in equities (especially in sectors like industrials, technology, and consumer goods that were hit by tariffs), and a reduction in haven flows to assets like gold. In essence, lifting the tariff overhang could unlock value and allow markets to focus on fundamentals again. The relief rally in stocks we saw with even a 90-day tariff pause suggests how much a full resolution might buoy markets. Long-term, an environment of fewer trade barriers is broadly positive for corporate earnings and innovation (companies can allocate capital more efficiently when not contending with trade walls). For Brigantia clients with broad-based investments, a return to more free trade would likely enhance global diversification benefits - as all regions could participate in growth without artificial constraints. That said, even in a positive resolution scenario, some adjustments would linger (companies might keep alternative suppliers as insurance, for instance). But overall, the outlook for long-term investors would brighten if the major economies step back from the brink of a trade war.

• Scenario 2: protracted standoff or partial decoupling – a challenging outcome. On the other hand, the trade war could drag on indefinitely or even widen. If negotiations falter, today’s “temporary” tariffs might become semi-permanent fixtures. The U.S. and China could settle into a new normal of strategic rivalry, using tariffs and export controls routinely. In this more bearish scenario, we’d see a continued push to decouple supply chains, with Western companies shifting manufacturing out of China, and China investing in self-sufficiency to weather U.S. pressure. Global trade growth would likely slow, and the efficiency gains of globalization could recede. For investors, this outcome presents headwinds. Persistently high tariffs act as a deadweight on global GDP, potentially leading to higher prices (inflation) and lower growth - a stagflationary mix that is not ideal for markets. Corporate profits would be lower than they otherwise might be, especially for firms reliant on cross-border trade. Some industries could be permanently restructured (for example, technology supply chains splitting into U.S.-led and China-led spheres). Market volatility might remain elevated, as companies and investors alike react to each new policy twist. Additionally, retaliation in a prolonged conflict could spread - we might see tariffs extend to more sectors or other countries drawn into disputes. Diversification would become even more crucial for investors in this world: one region’s slump might be offset by another’s resilience. There could also be relative opportunities - e.g. nations like India or Southeast Asian economies could benefit from manufacturing reallocation if China-U.S. ties fray. A savvy long-term investor would monitor such shifts and ensure their portfolio isn’t over-concentrated in any one country or sector vulnerable to trade barriers. The silver lining is that even under a grinding standoff, markets can adapt. Companies will find workarounds (new suppliers, passing costs to consumers, etc.), and monetary/fiscal policies might adjust to counteract trade drags. History has shown that markets are resilient: even trade disputes in the past did not stop the long-term upward trajectory of equities. But returns in a more protectionist world could be incrementally lower, and achieving growth might require navigating more bumps along the way.

• Scenario 3: oscillating uncertainty – the middle path. It’s quite possible the reality will be somewhere in between clear resolution and outright economic Cold War. We may get periods of easing and periods of friction, depending on political cycles and economic conditions. Tariffs could remain a bargaining tool that gets dialled up or down over time. In this scenario, investors face ongoing uncertainty - essentially a continuation of what we’ve seen: news-driven market swings, policy unpredictability, and the need for patience. The key for long-term investors here is strategic resilience. It means maintaining diversification not just across geographies but across asset classes (so that both riskier assets and safe havens are in the mix). It means focusing on high-quality companies with strong balance sheets that can withstand supply chain shocks or higher input costs. It also means keeping costs low (high-cost portfolios have less cushion when returns are under pressure), aligning well with Brigantia’s philosophy of low-cost, broad-based investing. In an up-and-down trade environment, staying the course can be tough emotionally, but history favours those who resist the urge to make knee-jerk portfolio changes. Eventually, clarity will emerge - either through a lasting agreement or through markets fully pricing in a new status quo. Volatility is not a permanent condition; it’s a phase that strong long-term strategies are designed to endure.

From a long-term global perspective, one might argue that some good can come out of the current tensions. They have spurred overdue discussions about fair trade, intellectual property rights, and diversification of supply chains. If these issues get addressed constructively, the global trading system could end up more balanced, which ultimately benefits everyone. On the flip side, a failure to manage these tensions could dampen the economic outlook for years. As investors, we have to weigh these possibilities. Importantly, avoid binary thinking - it’s not guaranteed that “trade war ends = all clear for stocks” or “trade war continues = doom for stocks.” Reality is nuanced. For example, even during the intense 2018–2019 tariff exchanges, U.S. equity markets overall continued to rise (albeit with volatility), and some sectors thrived. Long-term investment success will depend on adaptability, diversification, and prudent risk management more than on correctly predicting trade policy outcomes.

Conclusion: navigating the noise with a long-term lens

Tariffs and trade wars are a prime example of short-term noise that can distract investors from long-term goals. Today it’s a U.S.-China spat; in the future it could be something else. Geopolitical disruptions will come and go. The investors who prosper are those who keep a strategic perspective amid the headlines. At Brigantia, we believe in focusing on what we can control - ensuring portfolios are globally diversified, low-cost, and aligned with your long-term objectives, rather than reacting impulsively to every new tariff or tweet. Our experience shows that a broad-based investment approach, spanning regions and asset classes, provides resilience. When one market zigs due to a trade disruption, another may zag, smoothing out the overall journey.

As we’ve discussed, tariffs can indeed influence economic winds and cause market storms. But with thoughtful planning, you can design a portfolio built to withstand this turbulence. That means not over-concentrating in any one country or sector, keeping an eye on quality and valuation, and maintaining discipline in both bull and bear markets. It also means remembering the power of time in the market over timing the market. Trade wars, like other challenges, are inherently short-term events on the scale of a lifelong investment journey. They may last months or even years, but patient investors often find that staying invested through these cycles leaves them better off than making knee-jerk exits. The global economy has an remarkable ability to adapt - supply chains re-route, policies adjust, new opportunities emerge. Likewise, markets eventually price in the new reality and move on. By thinking long-term, you allow yourself to participate in that eventual recovery and growth.

In closing, while tariffs and trade tensions are not to be dismissed, we encourage readers not to lose sight of the forest for the trees. Use this time as an opportunity to review your portfolio’s balance - Are you diversified enough globally? Are your costs low? Do you have a plan in place for volatility? - and to reaffirm your commitment to a long-term strategy. Short-term geopolitical disruptions, as unnerving as they can be, should not derail a sound investment plan. In fact, they can sometimes present attractive entry points for the savvy, long-view investor.

If you have questions about how these macroeconomic events - from tariff changes to trade negotiations - might impact your own investments, Brigantia is here to help. Feel free to reach out and book a free, no-obligation introductory call with our team. We’re happy to discuss strategies to position your portfolio for resilience in the face of uncertainty. Remember, successful investing is a marathon, not a sprint. By staying informed, thinking strategically, and keeping a steady hand, you can navigate the choppy waters of trade wars and come out stronger on the other side.