Should You Actually Buy Stocks as President Trump's Tariffs Continue? Here's What History Says.

Tariff turmoil has ensnared the market. While the last two weeks have seen a partial rebound in stock prices -- especially high-growth technology companies -- the S&P 500 index (SNPINDEX: ^GSPC) is still down around 6% so far in 2025, down 10% from recent all-time highs, and has gone through some extreme volatility not seen since the COVID-19 shutdown.

Wall Street is nervous about what high tariff rates will do to the global economic order, especially the supply chain relationship between China and the United States, and what that means for corporate profits. What should you do with your portfolio in the face of these high tariffs? Here's what history says tariffs will do to corporate profits and the United States economy, and what it might mean for your portfolio.

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History is not kind to tariffs

Let's cut to the chase: Tariffs are a headwind to business profitability and economic growth. They are not a good thing for stocks. If a company is importing goods from China that have a 100%-plus tariff, the total cost of bringing that product to end customers goes up significantly. Sure, a company can pass on these tariff fees to customers, but at such a high rate, these price hikes will almost assuredly lead to demand destruction. Why buy a new toy for your child's Christmas if it costs $300 instead of $150 a year ago (just as an example). Only high luxury brands such as Hermes may be able to pass on these tariffs to customers without seeing demand fall off a cliff.

Protective tariffs that increase at a rapid pace are a shock to the economic order. It may inspire companies to reshore manufacturing to the United States, but that will take many years to implement, raise consumer inflation, and lead to supply shocks and shortages in the interim. How do I know this? Because we have historical evidence of the last time the United States sharply raised tariffs on imports.

In 1930, the United States wanted to protect the agriculture industry, an important industry historically for labor in the United States that was getting eroded due to automation. The government enacted the Smoot-Hawley tariffs to protect farmers, which led to increased costs in the United States and retaliation from other countries upset over the new law. This exacerbated -- and some say may have caused -- the intense economic hardship during the Great Depression. During the Great Depression, stock prices fell 90% from highs.

All this sound familiar? If the Trump tariffs stick around, it will likely be bad news for corporate profits, which means bad news for stock prices over the next few years. Of course, all these tariffs could be eliminated tomorrow, but if they do stick around the global economy will be negatively impacted.

Data by YCharts.

What to do as a stock investor depends on your personal situation

I won't sugarcoat things: Prolonged tariffs will not be good for stocks. But does that mean you should buy or sell stocks? The answer is more complicated than you may think. It depends on your personal financial situation and long-term goals.

If you are reading this as a 70-year-old drawing down savings in retirement, now might be the proper time to evaluate whether you have enough exposure to assets outside of the stock market. This could include real estate, corporate bonds, U.S. Treasuries, or just a simple high-yield savings account. If the stock market crashes because of tariffs, you don't want to be drawing down a portfolio when prices are in a 50% rout (or worse). Bonds can help dampen volatility during recessions. Anyone in retirement with a portfolio 100% invested in stocks is taking unnecessary risks with their savings, especially right now.

This does not mean you should sell stocks if you are young and are still going to be earning income for many years. Investors in their 20s, 30s, or even 40s should still look at investing in the stock market as a multidecade endeavor as you plan for retirement and build a nest egg. Tariffs may be a headwind for a while, but the United States economy should get through to the other side eventually. Invest with a time horizon longer than one presidential administration and you will sleep better at night.

The tariff turmoil is scary, and it is causing major stock market volatility. But don't let it scare you out of investing in the stock market. Take it as inspiration to reevaluate your personal financial situation and make sure your portfolio lines up with your life goals. That way, you will be set up for success no matter what market environment we end up in.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.