Why tariffs may not be a big deal after all

Key Points:

Tariffs initially caused market anxiety and a 19% S&P 500 decline from February to April.
A feared spike in inflation from tariffs hasn't materialized yet. Companies have largely managed tariffs by negotiating lower prices, absorbing costs, or modest price increases, keeping overall inflation mostly in check.
Markets have rebounded as the tariff impact proved less severe than expected. Better-than-forecast outcomes and ongoing trade deals have lifted the S&P 500 to an all-time high.
Many estimated tariff duties are not being collected because of enforcement complexity. This, along with over 50% of imports not being subject to tariffs, has lessened the drag on the economy.

It wasn't that long ago that President Donald's Trump's tariff strategy kicked up a hornet's next of debate.

Those favoring tariffs, which are taxes on imports, argue that they are the best way to kick-start U.S. manufacturing. Opponents believe tariffs are inflationary, sparking higher prices that can derail the U.S. economy, risking recession.

The truth may wind up landing somewhere in the middle. Tariffs can slow an economy, particularly if they increase quickly and significantly, like what President Trump originally proposed this spring.

However, billionaire fund manager Ken Fisher, founder of Fisher Investments, points out that in the U.S., tariffs' impact may be more muted than expected.

A tariff-fueled trade war in 2025 has caused a roller coaster ride for the U.S. stock market.

Image source: Anna Barclay/Getty Images

Tariff tussle, trade war, and trade deals cause roller coaster ride for markets

Legendary fund manager Paul Tudor Jones equated the originally proposed tariffs as the biggest new tax since the 1960s.

In February, President Trump enacted 25% tariffs on Canada and Mexico. He also implemented a 25% tariff on autos, a 10% tariff on all imports, and after much wrangling, a 30% tariff on China.

The end result of those tariffs is that the average effective tariff rate currently is 20.2%, the highest since 1911, according to the Yale Budget Lab.

JPMorgan Chase calculates the effective tariff rate was 2.3% in 2024, and is about 17% currently.

Either way, a big bump in import taxes led many to worry that U.S. companies would be forced to pass along higher-than-normal price increases, causing inflation to spike and household and business spending to fall.

That concern contributed heavily to the S&P 500's 19% tumble from all-time highs in February to the low in April.

While risk remains that companies will see revenue growth and earnings slow because of the impact of tariffs, so far, inflation remains manageable.

The Consumer Price Index for June showed headline inflation of 2.7%, up from 2.4% in May, but below the 3% inflation rate registered in January.

It appears as of now that companies are successfully navigating the tariff hit, mostly through a combination of negotiating lower prices with exporters, absorbing some of the costs, and more modest price increases.

More Tariffs:

Of course, some industries — such as autos, appliances, apparel, and furniture — are hit harder by tariffs. Still, overall, inflation has yet to reach levels suggesting a major retrenchment in spending that could further weaken the economy.

The better-than-hoped outcome, coupled with optimism that ongoing trade deals, such as the one recently reached with Japan, which lowered tariffs to 15% from 25%, would result in lower tariffs than initially feared, has helped the stock market recover all of its losses since February. The S&P 500 closed on July 26 at an all-time high.

Fund manager explains why tariffs may not be as bad as expected

Ken Fisher founded Fisher Investments, a money manager with $332 billion in assets under management, in 1979. Over his 45-plus year career, Fisher has seen a lot of good and bad economies and markets.

He's not a fan of tariffs, saying previously that they historically hurt the country imposing them more than the country they've been imposed upon.

Still, he also points out that the widespread threat associated with a tariff-driven economic recession may not be as big as some make it out to be.

“Tariff terror abounds, but ‘tariffied’ investors miss what markets don’t,” wrote Fisher on X. “While universal tariffs are foolish and a real economic negative, their real world bite is often muted.”

Fisher had previously forecast that enforcing tariffs would be incredibly difficult, and that we'd see significant difficulty in collecting them. He also opined that high tariffs would likely cause the black-market import business to soar.

He appears to be right.

“Through June, roughly 39% of estimated tariffs duties were actually collected — far less than many feared — owing to tariff enforcement’s complexity,” said Fisher. “Markets move on the gap between reality and expectations, and it’s always bullish when reality settles in better than overly dour expectations.”

Fisher also pointed out that over 50% of imports aren't subject to tariffs.

This isn't to say that the U.S. economy would be better off without tariffs in terms of growth, but only that the drag on the economy may not be as bad as originally feared. According to Yale Budget Lab, current tariffs are reducing U.S. GDP this year by about 0.8%.

In short, the stock market priced in a worst-case outcome from tariffs, providing plenty of room for positive surprises. Anything less than terrible can be viewed as a win that may lift analysts expectations for revenue and profit growth — the lifeblood of stock market returns.