Authored by Axial Financial Group’s Summer Interns
Sophia Codreanu, Urmi Patel and Teegan Toto
With all the recent news about tariffs making headlines, many people are starting to wonder about how this might affect their everyday lives. To understand the effects of tariffs, let’s first look at what a tariff is and its role in the economy. In simple terms, a tariff is a tax levied on goods imported from other countries. Tariffs can serve various purposes in the economy. One is to protect domestic industries from foreign competition. This can help companies in the U.S. thrive and preserve their business. President Trump also aims to lower the U.S. trade deficit through tariffs, essentially closing the gap between the amounts of imports and exports. To fully understand tariffs, it’s essential to understand the main goals behind them:
- Rebalancing: To correct trade imbalances by reducing excess imports.
- Decoupling: To lessen economic reliance on foreign countries.
- Negotiating: To apply economic pressure and achieve policy goals.
- Funding: To raise revenue for government priorities. 1
Once we understand their purpose, we can better explore how tariffs ripple through the broader U.S. economy.
The Bigger Picture
The S&P 500 is a collection of the top 500 stocks in the U.S. It is used as an important benchmark to measure the U.S. stock market’s health and economic trends. The index contains companies from various sectors like technology, health care, and finance. By monitoring the S&P 500, we can observe how tariff policies influence broader economic trends.
So, how have these tariffs begun to impact the market, and how will this affect us? Following Liberation Day, April 2nd 2025, we have observed a significant decline in the S&P 500 within the U.S. markets.2 Although it is predicted that the tariffs will bring in trillions in revenue for the United States in the long run, in the short term they have created some volatility in the S&P 500. In response to this, markets have begun to adjust. During volatile times, investors sometimes seek safer investments such as cash, T-bills or bonds.
Reflecting on previous tariffs, this pattern isn’t new. For instance, during the U.S.-China trade war in 2018, the S&P 500 dropped 4.4% after tariffs were announced. However, the market rebounded strongly in 2019, gaining 31.1%.3 These swings suggest that while tariffs may cause short-term instability, markets have historically recovered – and even grown – over time. Let’s look at examples of two stocks that were affected differently by the recent tariffs.
Company Case Studies: Winners and Losers
Companies that rely on imports, like Lululemon, did not perform well after the tariffs were announced, while domestic manufacturing companies, such as Caterpillar, fared better during these times of economic uncertainty. Lululemon, a popular athletic wear company, relies on Vietnam, Cambodia, and Sri Lanka to manufacture a large portion of its products. When tariffs were increased on imports from these countries, the profit margins for their products decreased. Specifically, the blended tariff rate for Lululemon’s products climbed to 39%, which results in a decrease in profit margins.4 In response, the company began raising prices on some products to offset the effects of the tariffs, but the uncertainty has already slowed consumer demand and led to a decline in Lululemon’s stock price (see below). 5
On the other hand, some companies, such as Caterpillar Inc., a U.S.-based mining and engineering equipment manufacturer, have experienced spikes in their growth. As shown over the past three months, the company observed an initial dip after Liberation Day, around the week of April 2nd. However, since then, the market has observed a 6.46% increase in stock price as of June 17th (See below).6
Since Caterpillar Inc. is an American-based company, they do not have to import materials, reducing cost and allowing it to avoid tariffs on certain aspects of manufacturing. Compare this to Lululemon, which outsources to other countries for materials and production of goods, and has been hit with higher tariffs. This has resulted in higher prices as well as a decline in Lululemon stock. To summarize, tariffs decreased profit margins and share prices for Lululemon, a company that relies on imports, but tariffs helped Caterpillar Inc., a U.S.-based manufacturing company, increase its share prices after they were announced.
Conclusion:
The US economy has experienced both positive and negative conditions due to many different factors, one of them being tariffs. Their impact varies widely across different sectors. While they increase production costs and reduce profit margins for some companies, they can also increase demand for domestic products and manufacturing. Historically, the markets show that for investors with diverse portfolios, they have the potential to be rewarded through times of economic uncertainty if they remain patient with their investments.
- Capital Group, Marketing Support: The Advisor view, June 2024
- Maria Aspan, “Markets plunge after ‘Liberation Day’ tariffs”, last modified April 3rd, 2025,
- Invesco Global Market Strategy Office, “Tariffs rattle stock markets, but long-term impact is unclear”, last modified March 14th, 2025
https://www.invesco.com/us/en/insights/tariffs-rattle-stock-markets-long-term-impact.html
- James Rogers, “Lululemon stock falls as Trump’s tariffs put it in the ‘bullseye,”’ Market Watch, last modified April 3rd, 2025 https://www.marketwatch.com/story/lululemon-stock-falls-as-trumps-tariffs-put-it-in-the-bullseye-this-analyst-still-says-buy-f76e05b5?utm_source=chatgpt.com
- Lululemon Athletic Inc., Google Finance
- Caterpillar Inc, Google Finance https://www.google.com/finance/quote/CAT:NYSE?sa=X&sqi=2&ved=2ahUKEwiAxZzTzfiNAxUQElkFHafpJ8IQ3ecFegQILRAT&window=1Y
Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Past performance is no guarantee of future results.
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.