How the Market Learned to Stop Worrying and Love Tariffs

In the early days of the Trump administration, investors were optimistic about the potential benefits of tariffs, such as protecting domestic industries and creating jobs. However, as the economic consequences of tariffs became more apparent, investors' sentiment shifted towards concern about the negative effects on consumer prices, supply chain disruptions, and overall economic growth. This article explores how the market has adapted to tariffs and learned to navigate their challenges.



Initially, investors were worried about the increased consumer prices resulting from tariffs on imported goods like steel and aluminum. The U.S. International Trade Commission (USITC) found that prices increased by about 1 percent for each 1 percent increase in the tariffs under sections 232 and 301. For example, the price of steel products in the United States increased by 2.4 percent due to section 232 tariffs, and the price of aluminum products increased by 1.6 percent (USITC, 2023). These price increases led to concerns about the affordability of goods for consumers and the potential impact on economic growth.

However, as the market adapted to tariffs, investors began to see opportunities in certain sectors. For instance, the U.S. steel and aluminum industries benefited from the reduction in imports and increased domestic production. According to the USITC report, U.S. production of steel was $1.3 billion higher in 2021 due to section 232 tariffs, with a 1.9 percent increase in production and a 2.4 percent increase in prices. Similarly, U.S. production of aluminum was $0.9 billion higher in 2021 due to section 232 tariffs, with a 3.6 percent increase in production and a 1.6 percent increase in prices (USITC, 2023).

Investors capitalized on these trends by investing in U.S.-based steel and aluminum producers, such as Nucor Corporation (NUE), United States Steel Corporation (X), and Alcoa Corporation (AA). Additionally, exchange-traded funds (ETFs) focused on the metals and mining sector, like the VanEck Vectors Steel ETF (SLX) or the Global X Aluminum ETF (ALUM), became popular among investors looking to benefit from the tariff-induced shifts in the market.



Another sector that demonstrated resilience in the face of tariffs was domestic manufacturing and reshoring. The imposition of tariffs on certain imported goods encouraged some companies to reshore their manufacturing operations or invest in domestic production. For instance, in the tire industry, the U.S. imposed tariffs on tires in September 2009, leading to a 3.7 percent increase in the producer price index (PPI) for American tire firms in Q4 2009, compared to a 3.4 percent decline in the first three fiscal quarters of that year. The tariffs helped save 1,200 domestic jobs in the tire manufacturing sector (USITC, 2023).

Investors can capitalize on these trends by investing in U.S.-based manufacturing companies that have shown resilience or growth in the face of tariffs, such as Goodyear Tire & Rubber Company (GT) or Bridgestone Americas. Additionally, ETFs focused on domestic manufacturing or industrial production, like the SPDR S&P 500 Industrial ETF (XLI) or the iShares U.S. Industrial ETF (IYJ), can provide exposure to companies benefiting from tariff-induced shifts in the market.

In conclusion, the market has learned to stop worrying and love tariffs by adapting to their challenges and capitalizing on the opportunities they present. While tariffs can have negative effects on certain sectors, they can also create opportunities for investors in specific industries. By carefully analyzing the data and trends, investors can identify companies and sectors that have shown resilience or benefited from tariff implementations and capitalize on these trends. As the market continues to evolve in response to tariffs, investors must remain vigilant and adapt their strategies to stay ahead of the curve.