How I Trade During Tariffs

Because we can't stop adding them, we are forced to adapt

What Tariffs Do

Tariffs raise costs on imports/exports for those they are imposed on. For the businesses who feel the repercussions of this usually have squeezed margins, reduced trade volumes, and growth scares. Tariffs (obviously) creates trade-policy uncertainty and often causes an initial drop in returns in the market, followed by a partial recover—as learned from last year—but can continue to depress stock prices over the long term since cash flow is being cut. Now, tariffs hit exporters, supply-chain businesses, and other logistic industries usually. However, with the extreme a certain individual in the White House takes tariffs too, a lot more industries such as auto, luxury, and cyclical businesses are hurt pretty heavily.

So let’s learn how to actually MAKE money in these uncertain times.

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Current Holdings Check

With tariffs comes a lot of necessary research for independent investors unfortunately. Luckily, none of it is grueling work unless you have countless holdings that all differ heavily. Here’s a quick checklist to run:

• How much revenue comes from the tariff targeted region? (China, parts of Europe, etc.)

• Does the company rely on imported inputs now facing tariffs? (steel, computer chips, etc.)

• Can the company pass the higher prices to customers? If so, will customers leave or seek cheaper competition?

• Look at the balance sheet, can the company ride out a few rough years of lower margins or high uncertainty?

This isn’t a fool-proof checklist, but it should separate the holdings you have into defensive companies—stocks that are safe with things like tariffs going on—or stocks that you should be more wary on and consider taking action.

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Don’t Nuke the Portfolio Yet, Adjust This:

Rather than feeling the need to wipe out all of your positions and only buy defensive positions, here’s a way of easily adjusting what you already have.

After completing the checklist, consider trimming oversized positions that you would consider a highly exposed name. Trim them back to what is ‘normal sizing’ for your portfolio at minimum.

Don’t just sit on cash and tell yourself there’s nothing you can do because tariffs are unpredictable. There are actions that can be taken. With your capital, you can lean into sectors that historically buffer trade stress (quality factors, defensive stock, or domestic only businesses), buy commodities that may benefit from the chaos (gold historically thrives in uncertainty for example), or you can try and play the game— conspire what businesses may rely on when uncertainty hits them (whether they have to adjust or make sacrifices, and where they would go to fix such). The last option is risky, requires lots of listening to the news, and not recommended for majority investors.

Finally, if you are using leverage/options, you may want to consider stopping in the meantime and setting (increased) safety measures for the higher swing positions you already have.

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For New Decisions:

Many smart investors see debacles, such as tariff uncertainty, as a grand buying opportunity. This is on the right track of thinking, but there are some housekeeping items you have to keep in check.

• Existing Positions: Did the thesis change, or just the price?

If tariffs directly cut into the future of a position of yours, and it does more structural damage to the business rather than a mere scrape, your decision comes down to how much conviction you have in the business; ask yourself honestly if the company will pull through after the tariff chaos is over, if it will plateau, or if your capital is better spent on a different stock. If confidence is still high, treat tariffs as cyclical noise and do nothing.

• New Entries: Why are you buying it? Did your investing strategy bend to buy it?

Many people will look differently at a stock they’ve never liked, just because it’s trading 20% below what it’s usually at. Any dip a stock has doesn’t automatically make it a ‘buying’ dip. Simply, if you catch yourself going bargain hunting for the sake of finding a bargain, stop yourself. Don’t sacrifice your strategy to find a ‘good deal’ during an uncertain market, spoiler alert: you’ll always find a bargain in a market down turn!

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Conclusion

This article was not meant to terrify you over the subject of investing with tariffs; but rather show that tariffs are one risk among many investors have to deal with and that there are ways to keep business as usual. Tariffs aren’t the root of all losses nor the sole driver of returns, it’s certainly a hurdle for investors, but there are many ways to get around a hurdle—it doesn’t mean you have to stop running. I encourage you to audit your positions and your investing ideology as we (yet again) enter a tariff season. Happy investing!