Tariff Policies Manifesting Risks in U.S. Markets
By Trinity DiNunzio
Risks & Rewards, September 2025
Introduction: A Real Time Example of Potential Systemic Risk Manifesting
As tariffs are being introduced on a global basis, the implications become increasingly complex. While tariff risk has previously remained a minimal component of the U.S. market’s prioritizations, recent political shifts have rippled through international trade, capital markets, and industry incentives. At a point in time where tariff policies are fast-changing, maintaining a forward-looking approach becomes ever-more important. Tariffs have become an example of a systemic risk source that is catalyzing market shifts. Their impacts can encompass supply chain disruptions, international relations, cross-border cash flows, cost structures, and consumer pricing. Their compounding impact has created unprecedented volatility and uncertainty within the markets.
Recent Events and Market Impact
While tariffs have been in negotiation and shifting on a weekly or even daily basis, the use of anchoring tactics poses a threat to U.S. markets as very high initial offers cause fearful responses from investors, resulting in steep and fast market fluctuations. On April 2, a 34% reciprocal tariff on goods imported from China was imposed along with a 10% universal tariff rate and varying increased rates on imports from countries and regions such as the European Union, Japan, and South Korea. China then responded with an 84% tariff on imported goods from the United States.[1] On the same day, the markets began to sink. On April 8, a 104% tariff was imposed on China, causing a 1.57% decline in the S&P 500 and a 2.15% decline in the Nasdaq within 24 hours.[2] The following day, tariffs imposed on China were increased to 125%. Over the course of that week following the first tariff announcement on April 2, the S&P 500 had fallen over 12% while the Nasdaq had fallen 13%.[3] Later, on April 9 though, the reciprocal tariffs were put under a 90-day suspension, leaving only the universal 10% tariff remaining. In response, the S&P 500 quickly recovered with a spike of 12.5%.[4]
This week-long chain of events sheds light on the potential volatility of U.S. markets in response to such quick changes. Only a delay was introduced, postponing but not eliminating the impacts the market reacted to. Another example of sharp market influence can be seen when the S&P 500 increased by 1.6% and the Nasdaq by over 2% overnight after the 50% E.U. tariffs received a 90-day pause. Smaller instances include the proposed tariff on Apple products, causing a 2.5% drop in Apple Stock as well as a dip of 1% to 1.5% in U.S. markets on May 23.[5] While responses to these announcements are noteworthy, the real impact of these changes is only beginning to be seen.
Shifts in Investment Strategies by Institutional Investors
KPMG stated that “with 61% of institutional investors acknowledging the high impact of tariffs on investment decisions, there is a notable shift towards domestic companies and sectors less impacted by tariffs, particularly in technology and cybersecurity.”[6] They found that investors have shown an increased prioritization of IPOs and strong belief in market growth and stabilization in the long term, while the next few months pose high uncertainty. Many believe rate cuts will also follow these changes, resulting in potential economic stimulus.[7] Tax policy and geopolitical risk have become key risks for many institutional investors. This poses a unique instance where risks must be adjusted based on real-time information, and historical data will hold more minimal influence.[8]
Inflation also poses an investment-related concern as tariffs are likely to cause up to 2% excess inflation over federal targets, outpacing economic growth the following year. Many economists suspect an initial slowing of economic growth in the United States ranging from 1% to 3% in 2025, though optimism prevails over the long term.[9] Diversification is generally the favored solution in these cases, specifically liquid alternative investments with low correlations to bonds. There are strong correlations between tariff status and international private equity management as well, particularly within pension fund managers.[10]
A study conducted by the University of St. Gallen in Switzerland found a very stable correlation where “public pension funds [in the United States] reduce their commitments to foreign managers by 1.1 percent for every percentage-point increase in import restrictions, while upping investments by 1.4 percent when foreign markets erect barriers against U.S. exports.”[11] They highlight that strategic adjustments related to tariffs, particularly by multinational corporations, are a long-standing practice. However, while many companies are poised to adapt quickly, the speed of change causes unique problems, in part due to the limited manufacturing capacity within the United States. In the past, the corporations commonly relied on foreign subsidiaries or partnerships to avoid crossing borders directly — sometimes referred to as “tariff-jumping.” Public pension funds, for example, seem to now be applying a similar approach, a strategy which has not been witnessed previously.[12]
Corporate Reactions as Investment Signals
Corporations are mitigating downside impact while seeking opportunities amidst the changes in international policy. While some sectors may experience a greater downside than others, most will likely review and revise their strategies for the rest of 2025 and 2026. The automotive industry is predicted to face a surge in pricing as 25% automotive tariffs on imports from all countries will increase the cost of international production. Companies such as Ford are making use of their domestic production facilities while General Motors is cancelling their multi-billion-dollar 2025 buy-back of shares to buffer their anticipated losses. Many in this sector are implementing price increases ranging from 10% to 20%, though in many cases this will not absorb all tariff-related costs while posing a high risk of potential lost business.[13]
The retail sector has chosen a more minimalistic approach, resuming their temporarily paused imports and increasing prices where necessary while focusing primarily on cost-cutting measures to make up the difference. Many large retailers such as Walmart have adjusted their 2025 financial projections in anticipation of lower sales. The technology industry faces some of the greatest shifts as many large U.S.-based technology companies manufacture their products in China. Apple has worked to shift production from China to India, while companies such as Thermo Fisher and Nvidia are beginning to invest in U.S. infrastructure. These companies will still incur losses from tariffs on hardware components imported for production unless they are able to locate new domestic sources. Partnerships with smaller technology companies that already own manufacturing facilities in the United States or that have contracts to manufacture domestically are also increasing, reducing some of the risk in increasing infrastructure. Nvidia is working to move microchip production completely to the United States in hopes of creating a large opportunity to become the primary U.S. supplier.[14]
Projecting Risk
The impacts of tariffs could be accounted for in risk modeling to assess a company’s position. Tariffs impact many risk sources, including geopolitical risk, compliance risk, strategy execution risk, supply chain risk, operational risk, reputational risk, concentration risk, counterparty risk, inflation risk, market risk, liquidity risk, and in some cases, even credit risk. This array makes modeling a challenge, though through scenario analysis, one can estimate their potential impact, albeit with possibly lower accuracy rates due to rapidly changing conditions. Nearly all companies are facing some level of heightened geopolitical risk, supply chain risk, concentration risk, and inflation risk.
Companies could prepare for a wide range of possible scenarios that may arise while investors could try to assess a company’s ability to adapt successfully across these scenarios. Risk management extends beyond traditional practices toward a readiness to respond to a wide range of potential risk manifestations. By maintaining flexible and up-to-date scenario and sensitivity analysis as well as their other risk frameworks and models, companies can stay agile and maintain control. Seeking flexibility in supplier and distributor contracts, along with supplier and customer diversification, could offer a layer of protection, as it could make implementing mitigation plans easier in response to sudden changes. Pairing dynamic risk management and modeling with a focus on stable business elements could allow companies to mitigate risks more quickly and identify potential upside opportunities.[15]
Personal Portfolio Management
Given the market volatility caused by evolving tariff-related policy changes, managing risk becomes vital. Diversification, a common strategy, between stocks, bonds, and alternative investments may create a buffer in the case of sudden losses, with a foundation of lower-volatility stocks, which may adjust for inflated market fluctuations. This heightened volatility might also provide opportunity, as stocks that are uncorrelated or negatively correlated to the market may produce rewards during these quick drops. Derivatives in currency also might offer opportunity, as currency fluctuations have also shown more variation. For example, BlackRock has recently focused on shorting the U.S. dollar compared to currencies of other developed countries, stating that inflation risk appears currently underpriced.[16]
While tariffs pose many challenges for investors, there may be potential opportunity over the long term. An increase in domestic capital spending could create opportunities for corporations that are able to adjust their operations to limit and isolate variables. An increase in revenue stemming directly from the U.S. markets within the S&P 500 companies can already be seen, starting in January 2025 and steadily increasing. Along with potential trends toward declining interest rates, this may lay the groundwork for strong long-term growth and perhaps exceeding benchmarks for domestic markets.[17]
JP Morgan sheds light on the “emotional noise” playing out in the markets.[18] It bears keeping in mind that many tariffs are still under negotiation and will undergo gradual implementation despite sometimes volatile market reactions. Throughout June, U.S. markets rallied despite the sharp fluctuations and challenges, conceivably signaling a short-term impact for the market. Even as the 90-day pause reached its end, the market remained optimistic and relatively strong through these dips and spikes.[19]
Final Thoughts
This article covers market events through July 6, though this topic is certain to have evolved quickly over the following months. Periods such as this shed light on the importance of holistic, integrated, and dynamic risk management for all internal and external stakeholders. Companies and institutional investors will likely want to continue prioritize forward-looking risk management that builds in flexibility, to strive for resiliency and navigate potential domestic opportunities, risks and complex international challenges.
This article is provided for informational and educational purposes only. Neither the Society of Actuaries nor the respective authors’ employers make any endorsement, representation or guarantee with regard to any content, and disclaim any liability in connection with the use or misuse of any information provided herein. This article should not be construed as professional or financial advice. Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Trinity DiNunzio is currently pursuing a Master of Science degree in Enterprise Risk Management at Columbia University. She can be reached at trinity.dinunzio@columbia.edu.
Endnotes
[1] “A Timeline of Trump’s Tariff Actions So Far”, PBS News, May 26, 2025, https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far.
[2] Hakyung Kim & Sean Conlon, “Dow tumbles More Than 300 Points Tuesday as Tariff-Induced Sell-Off Resumes: Lives Updates”, CNBC, April 8, 2025, https://www.cnbc.com/2025/04/07/stock-market-today-live-updates.html.
[3] “A Timeline of Trump’s Tariff Actions So Far”, PBS News, May 26, 2025, https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far.
[4] John Towfighi, David Goldman & Anna Cooban, “US Stocks Skyrocket Higher After Trump Signals Shift in Trade Policy”, CNN, April 9, 2025, https://www.cnn.com/2025/04/09/investing/global-stock-market-reciprocal-tariffs-hnk-intl.
[5] Art Raymond, “Stocks Jump After Trump’s EU Tariff Pause”, Deseret News, May 27, 2025, https://www.deseret.com/business/2025/05/27/donald-trump-trade-tariffs-eu-pause-stock-prices-consumer-confidence/.
[6] “KPMG Survey: Tariffs Reshaping Institutional Investors’ Investment Strategies Amid Economic Uncertainty and Increasing Focus on Domestic Growth”, KPMG, June 11, 2025, https://kpmg.com/us/en/media/news/tariffs-reshaping-investment-strategies.html#:~:text=With%2061%25%20of%20institutional%20investors,particularly%20in%20technology%20and%20cybersecurity.
[7] “KPMG Survey: Tariffs Reshaping Institutional Investors’ Investment Strategies Amid Economic Uncertainty and Increasing Focus on Domestic Growth”, KPMG, June 11, 2025, https://kpmg.com/us/en/media/news/tariffs-reshaping-investment-strategies.html#:~:text=With%2061%25%20of%20institutional%20investors,particularly%20in%20technology%20and%20cybersecurity.
[8] John Towfighi, David Goldman & Anna Cooban, “US Stocks Skyrocket Higher After Trump Signals Shift in Trade Policy”, CNN, April 9, 2025, https://www.cnn.com/2025/04/09/investing/global-stock-market-reciprocal-tariffs-hnk-intl.
[9] Matt Toledo, “Analysts, Institutional Investors React to Trump Tariffs”, Plan Advisor, April 4, 2025, https://www.planadviser.com/analysts-institutional-investors-react-trump-tariffs/.
[10] Caryolyn Barnette, “Tariff Uncertainty: Impacts on Markets and Portfolios”, BlackRock Advisor Center, April 14, 2025, https://www.blackrock.com/us/financial-professionals/insights/tariffs-and-investment-portfolios#:~:text=Michael%20Gates%2C%20lead%20portfolio%20manager,consumer%20spending%2C%20and%20reduced%20corporate.
[11] James Comtois, “Institutional Investors Wield Enormous Influence Over Trade Policy – Even if Indirect”, Institutional Investor, April 29, 2025, https://www.institutionalinvestor.com/article/institutional-investors-wield-enormous-influence-over-trade-policy-even-if-indirect.
[12] James Comtois, “Institutional Investors Wield Enormous Influence Over Trade Policy – Even if Indirect”, Institutional Investor, April 29, 2025, https://www.institutionalinvestor.com/article/institutional-investors-wield-enormous-influence-over-trade-policy-even-if-indirect.
[13] Grace Sharkey, “20 Company Reactions – Good and Bad – to Trump’s Tariff War”, Freight Waves, April 30, 2025, https://www.freightwaves.com/news/20-company-reactions-good-and-bad-to-trumps-tariff-war.
[14] Grace Sharkey, “20 Company Reactions – Good and Bad – to Trump’s Tariff War”, Freight Waves, April 30, 2025, https://www.freightwaves.com/news/20-company-reactions-good-and-bad-to-trumps-tariff-war.
[15] Paul McKay, Alla Valente, Heidi Shey & Cody Scott, “Global Tariffs: Dynamic Risk Management Meets Its Moment”, Forrester, April 23, 2025, https://www.forrester.com/blogs/global-tariffs-dynamic-risk-management-meets-its-moment/.
[16] Caryolyn Barnette, “Tariff Uncertainty: Impacts on Markets and Portfolios”, BlackRock Advisor Center, April 14, 2025, https://www.blackrock.com/us/financial-professionals/insights/tariffs-and-investment-portfolios#:~:text=Michael%20Gates%2C%20lead%20portfolio%20manager,consumer%20spending%2C%20and%20reduced%20corporate.
[17] Andrew Korz, “Tariffs: Analysis and Investment Implications”, FS Investments, April 3, 2025, https://fsinvestments.com/fs-insights/tariffs-analysis-and-investment-implications/.
[18] Paul McKay, Alla Valente, Heidi Shey & Cody Scott, “Global Tariffs: Dynamic Risk Management Meets Its Moment”, Forrester, April 23, 2025, https://www.forrester.com/blogs/global-tariffs-dynamic-risk-management-meets-its-moment/.
[19] Gabriella Santos, “How Should Investors Think About Tariffs in 2025?”, JP Morgan Asset Management, December 20, 2024, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/on-the-minds-of-investors/how-should-investors-think-about-tariffs-in-2025/.