Yesterday after the close of equity markets, the Trump administration surprised the world upon releasing import taxes (tariffs) on goods from all nations.

It was not unexpected that new tariffs would be imposed, so why are equity markets reacting so negatively? The tariff rates were much higher and broader than the market was anticipating.

Markets do not generally move if good news or bad news comes in as expected, but they can move quite quickly if news is better than or worse than expected.

What Exactly is Happening

• There is a 10% baseline tariff across the board on ALL imports.
• Some nations will be assessed a “discounted reciprocal tariff”. These are higher tariff rates on certain nations that the White House considers “bad actors on trade”. For example, the European Union will be assessed a 20% tariff.
• A new 34% tariff is being assessed against China which is on top of previously implemented tariffs, making the base tariff rate on Chinese imports 54%. This base tariff is before accounting for other tariffs that were added to China during Trump’s first term, and during Biden’s term.
• Canada and Mexico are excluded from the reciprocal tariff. They are still subject to plans to impose 25% tariffs on most imports to the US.
• As previously announced by the administration, all foreign made automobiles will be assessed a 25% tariff.

The White House has released image summaries of the imposed tariffs, here are the top countries impacted below but in all there are 185 countries affected by yesterday's announcement.

This blanket announcement even imposed a 10% tariff rate on the Territory of Heard and McDonald Islands. No one lives there, except penguins, as Peter Mallouk mentions below:

What is a Tariff?

A tariff is a corporate tax. If Apple imports $1 billion worth of phones from China, then Apple will pay a tariff to the US Government of ~$540 million (54%).

At the end of the day, a corporate tax is essentially passed onto one or all three groups of the following people: the shareholders (through lower profit margins, lower returns on invested capital), the employees (through lower benefits, wages, or overhead cuts), or the consumer (through higher costs of goods and services).

What is the End Game?

I am not sure anyone knows the answer to that question. I believe the White House thinks the trade imbalances with many countries need to be balanced out. That could take a while.

Warren Buffett discussed this topic in good depth in a 2003 Fortune article that can be found here. If you are interested in this topic I recommend reading it.

How Are Other Countries Responding?

Yesterday's announcement could lead to retaliatory tariffs being imposed by other countries on US exports. Chelsey Dulaney of the Wall Street Journal has summarized how countries have responded so far:

• Australia (10% tariff): Prime Minister Anthony Albanese said his government will try to negotiate with the U.S. to remove the tariffs, but won't join a "race to the bottom" by retaliating.
• Brazil (10% tariff): Brazil said it was considering its options for a response, including through the World Trade Organization, where countries can lodge disputes. Brazil's Congress passed a bill letting the government respond to foreign tariffs on its goods.
• Canada (no new tariffs; prior tariffs of 10-25% on some exports remain): PM Mark Carney said Canada would introduce unspecified countermeasures, on top of earlier retaliation.
• China (new additional 34% tariff): Beijing said it would take countermeasures, which it didn't specify. China retaliated against earlier tariffs with relatively modest measures.
• The European Union (20% tariff): European Commission President Ursula von der Leyen said the bloc is working on new countermeasures, while finalizing tariffs in response to earlier U.S. metals tariffs. Still, she expressed hope there is still time for negotiation.
• India (27%): New Delhi indicated it had no plans to retaliate, and said it would look for opportunities from U.S. tariffs. Its rate remains lower than others in Southeast Asia.
• Japan (24% tariff): PM Shigeru Ishiba pledged support for affected domestic businesses and said "we will continue to strongly urge the U.S. to review its measures."
• Mexico (no new tariffs; prior tariffs on some exports remain): President Claudia Sheinbaum said Mexico will announce on Thursday a comprehensive response to U.S. tariffs, but isn't pursuing "tit-for-tat on tariffs."
• South Korea (25%-26% tariff): Acting President and PM Han Duck-soo said Seoul would provide emergency support for the auto industry and others exposed to tariffs. South Korea's exact tariff rate remains unclear, with separate White House documents stating rates of 25% and 26%.
• United Kingdom (10% tariff): PM Keir Starmer said his goal is secure a trade deal with the U.S., stressing his government would keep a "cool head." But he said "nothing is off the table."
• Vietnam (46% tariff): PM Pham Minh Chinh said Vietnam should establish a rapid-response team to formulate a plan.

What Should an Investor Do?

These events can be unsettling for investors, but the market volatility we have seen so far in 2025 is not unordinary. I have shared a version of the chart below many times over the years, and I believe it helps reiterate that market disruptions are completely normal and to be expected.

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On average a 14% decline happens every single year, but the market has ended positive in 34 of the last 45 years with an incredible compounded annual growth rate.

An investor should have enough of their portfolio in fixed income to weather storms like this (if they are in a distribution phase or close to it), and my general recommendation is 5-10 years of anticipated withdrawals to be secured from equity market risks. With interest rates declining quickly now, bond prices have trickled higher for the year.

If you are a client of the firm, your portfolio should already be in a good position to weather this current market storm.

An investor that has more in fixed income/cash than they need should be considering this an opportunity to put money to work for better long-term growth.

The stock market is the only store on Earth where everybody wants to leave once things go on sale.

But Is It Different This Time?

It's cliche but the words "it's different this time" are known to be some of the most dangerous in investing. Of course, it is different this time.

It was different this time in March of 2020 when a virus came out of left field that was projected to kill hundreds of millions of people worldwide, 57 million people filed for unemployment, and we had a -32.9% quarterly GDP.

It was different this time when the housing bubble collapsed in 2008 and the US stock market declined over 50% from its peak.

It was different this time on 09/11/2001 when the World Trade Centers came down killing nearly 3,000 Americans.

It was different this time during World War 2, when 400,000+ Americans died and over 50 million perished globally.

The saying "it's different this time" is not ceasing to acknowledge these black swan events that have never occurred before, it is suggesting that one should not alter their portfolio based on these events.

Every past market decline has recovered, and there is no reason to believe this one won't. The patient long term equity investor has been tremendously rewarded throughout history. Don't overthink it.