Trade Wars Are Flaring Again. What It Means for Investors

Stocks were diving today as Friday's celebration of the Supreme Court's blocking of tariffs was short-lived.

By Monday afternoon, all three major indexes were down more than 1% as several news items sent stock market sectors like financials, cybersecurity, and software sharply lower.

However, the biggest reason seemed to be renewed trade tensions between the U.S. and Europe over another round of tariff threats. By Monday afternoon, all three major indexes were down more than 1%, and as of 2:47 p.m. ET, the S&P 500 (SNPINDEX: ^GSPC) was down 1.2% and the Dow Jones Industrial Average (DJINDICES: ^DJI) was off 1.7%.

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What's happening with tariffs

After the Supreme Court struck down President Trump's tariffs, he announced a 10% global tariff on Friday afternoon under a different legal authority, and on Saturday, he said he would raise the global tariff rate to 15%.

The Supreme Court ruling also means it's unclear if the government will be able to keep the tariff revenue it's already collected, and it will have to find an alternative way to pay for its budget, which included an expensive tax cut last year.

On Monday, the European Union responded that it was pausing its plans to implement the trade deal it agreed to last year, which included a 15% tariff rate. Bernd Lange, the chair of the European Parliament's Committee on International Trade, called the situation "pure tariff chaos" and suggested that new tariffs were a breach of the deal. In a statement, the European Commission said, "A deal is a deal."

The uncertainty around the tariff situation now appears higher than ever, as Trump's legal authority looks more dubious than before.

What it means for investors

Wall Street famously hates uncertainty, and so do multinational corporations. Many S&P 500 stocks had spent the last year rearranging supply chains to mitigate the impact of the tariffs, and it's unclear where they'll go from here.

On top of the impact from the tariff uncertainty, sectors like financials and software are reeling after a blog post from Citrini Research described a hypothetical scenario in 2028 where stocks like American Express and ServiceNow were hit hard.

Should you ignore the noise?

For investors, ignoring the noise around tariffs might be the best course of action for now as past fluctuations, like the original "Liberation Day" announcement, have proven to be fleeting. Some investors have taken to saying, "Trump Always Chickens Out," or TACO, about these tariff threats.

Another option is to diversify internationally into markets like Europe, China, or South Korea, which are cheaper than the U.S., and, in fact, international stocks have beaten the S&P 500 over the last year.

Overall, there's no immediate reason to change your investing approach based on tariff tensions, but it's an issue investors should pay attention to as it's unlikely to go away anytime soon.

American Express is an advertising partner of Motley Fool Money. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.