How Trump's New Tariffs Are Shaking Up the Stock Market
May 2025 | By Akbar Muhammad
What happens when someone with enormous global influence decides to raise taxes on nearly everything the U.S imports? As you may have seen on the news, television, or perhaps social media, President Trump recently announced his new tariffs. In early April 2025, Trump introduced sweeping “reciprocal tariffs,” placing a baseline 10% tariff on all imports and higher tariffs on specific countries.
What are tariffs? A tariff is a tax imposed by one country on the goods and services imported from another country. There are two types of tariffs, the first one is a fixed fee based on the type of item. For example, the government places a $100 tariff on a car. The second type of tariff is called an ad-valorem tariff, which is imposed based on the item’s value, such as 5% of an import’s value. Governments impose tariffs for multiple reasons, including raising revenues, protecting domestic industries and consumers, and protecting national interests.
Shifting our focus to the effects of these tariffs, the stock market reacted immediately—or we could even say within hours after! After President Trump’s tariffs announcement, major stock indexes like the Dow Jones, the S&P 500, and the Nasdaq composite went down sharply. Investors were afraid that the tariffs would increase costs for production, which leads to less profit and, ultimately, slower economic growth.
Many well-known companies were affected. For example, Apple, which relies heavily on parts manufactured in China, saw its stock fall due to concerns about higher supply chain costs. Nike, who imports much of its apparel from countries like Vietnam, was also hit by fears of rising import expenses. Ford and other automakers, which often source car parts globally, faced potential disruptions and increased costs from new tariffs on steel, aluminum, and foreign-made components.
This uncertainty led to something called market volatility, which means stock prices are moving up and down less unpredictable than usual. This happens as investors scrambled to figure out what the tariffs might mean to the future. When investors aren’t sure what’s going to happen next, they often sell their stocks quickly, which causes prices to fall even more.
If you ever wonder why investors were so concerned about the tariffs, it has to do with something called Earnings Per Share (EPS) and the Price-to-Earnings (P/E) Ratio.
EPS measures how much profit a company makes for each share of its stock. If tariffs cause businesses to pay more for materials or resources, their costs go up and their profits might shrink. When profits decline, the company’s EPS goes down as well. A lower EPS signals to investors that a company isn’t earning as much money as before, making the stock less attractive to buy.
Meanwhile, P/E Ratio helps investors figure out if a stock is expensive compared to how much the company is actually earning. It’s calculated by dividing the stock price by the EPS. If a company’s EPS goes down while the price stays the same, the P/E ratio rises, making the stock look overpriced. Therefore, when investors see a high P/E ratio and low EPS, they often lose confidence and sell their stocks—causing the price to drop.
While it is true that the stock market reacted quickly to the tariffs, the long-term effects might take more time to fully understand. If these tariffs stay in place—or if other countries respond back with their own tariffs—it could lead to something known as a trade war, where nations keep raising taxes on each other’s goods. This kind of back-and-forth response can hurt global trade, making it more expensive to do business internationally.
So, what does this all mean? Tariffs may seem like simple numbers in the news, but they can have real impacts on businesses, the stock market, and even the prices we pay for everyday items. While the short-term effects are quick and dramatic, the long-term effects will depend on how governments and companies respond in the months ahead.
Whether or not you’re investing, understanding how global decisions affect the economy is a valuable skill.
Glossary
Tariff – A tax placed on goods coming into a country from another country.
Market Volatility – When stock prices rise and fall unpredictably.
Earnings Per Share (EPS) – How much profit a company earns for each share of its stock.
P/E Ratio (Price-to-Earnings) – A way to measure if a stock is expensive compared to how much the company earns.
Trade War – When countries keep raising tariffs on each other’s goods in response to trade policies.
Supply Chain - The system of people, companies, and steps involved in making and delivering a product—from raw materials to the final product you buy.
