The Invisible Tax
“Any time you read that your government is erecting tariff barriers, supporting threatened industries with subsidies, or interfering in any way with free trade between individuals or nations, you must realize that your standard of living is being lowered as a result.”
Just the other day, I was chatting with my boys about a possible new car purchase, since my current lease was coming to an end soon. I shared with them the different models I was interested in and their current prices. I mentioned how much more expensive they had gotten compared to a few years ago.
As we discussed what could possibly be driving these increases, it got me thinking about all the hidden factors that can impact our wallets without us even realizing it. That conversation I had with my kids, can help you realize that things like tariffs, which often sound like abstract economic policies, actually have a very real and tangible effect on the cost of everyday goods and can quietly influence our personal finances in ways we might not expect.
Tariffs are frequently in the news these days. What's your immediate reaction to new tariffs—optimism or apprehension?
Most Americans anticipate price increases and disruptions, and are likely skeptical about the supposed "benefits" and personal implications.
While often perceived as concerns solely for politicians or economists, tariffs silently influence our financial lives. They extend beyond Washington-to-Wall-Street discussions, subtly impacting supply chains, the cost of everyday goods, and ultimately, your wallet. This underlying influence is why markets and investors can react strongly to tariff news.
However, there's no need to panic or view tariffs as a financial "boogeyman." Despite their complexity, tariffs don't have to be mysterious. By understanding their mechanics, you can transform uncertainty into opportunity. Let's explore how policy decisions translate into portfolio effects, helping you make sense of it all and potentially uncover new opportunities.
What Are Tariffs
Tariffs are federal taxes on imported goods, usually imposed as a percentage, based on the cost of the product when it crosses the border. Used to protect domestic industries, tariffs can also be leveraged to:
Raise revenue for the US government
Safeguard American jobs and give domestic products a competitive edge
Respond to unfair trade practices abroad and strategically put pressure on foreign trade partners
Tariffs have been around for centuries, and they’re no stranger to controversy. These days, tariffs can raise questions about how dated, effective, and risky they may actually be.
In the News: In mid-2025, the US announced plans to double certain import tariffs — such as those on steel and aluminum — from 25% to 50%. While the legal status of these tariffs remains under review, they continue to influence pricing and supply chain decisions for now.
Example: Let’s say 1,000 lbs. of imported aluminum used to cost $1,000. If a 50% tariff were applied, that same shipment would now cost $1,500. And since the US imports about half of its aluminum supply — with most of it coming from countries like Canada — those cost increases can have real ripple effects across multiple industries.
Supply Chains
A supply chain is the full journey from raw material to final product, describing the path through suppliers, manufacturers, distributors, and retailers.
When tariffs increase the prices of foreign goods, supply chains can be upended. That's because manufacturers and other businesses facing higher-priced foreign goods often look for new suppliers and cheaper alternatives.
That could mean:
Looking to domestic suppliers
Bringing things in-house
Switching up products or methods
With that, established trade routes and the players who run them can face delays, rising costs, or even full-scale reshuffling, forcing businesses to adapt quickly or risk falling behind.
In the News: With new aluminum and steel tariffs in place, automakers have reassessed their sourcing, costs, and production plans. Some have switched to derivative articles that the tariffs don't impact while others have turned to new supply channels and cost-limiting alternatives.
Example: A US importer, now paying the 50% tariff, sees costs go from $10,000 to $15,000 for 10,000 lbs. of Chinese aluminum. The importer passes this cost downstream, adding a 10% margin to the total to cover the extra red tape. Now, that $15,000 bill for Chinese aluminum is $16,500, and manufacturers need to decide whether to pay or pivot.
Market Sector Effects
Different industries react to tariffs in unique ways. Some, like domestic manufacturers, may benefit in the short term, with increasing demand that opens the door to price hikes. That could generate new supply chains, partnerships, and other opportunities.
On the other hand, companies that rely heavily on global materials can experience:
Stalled production
Rising costs of doing business
Shrinking profit margins
Those hurdles can send shockwaves through operations, growth plans, and investor confidence.
In the News: The 50% tariffs on aluminum and steel are projected to increase domestic output by 1.3%. At the same time, other sectors could be crowded out, with forecasts anticipating construction output to drop by 2.0% and agriculture production to decline by 0.9%.
Example: With imported aluminum going from $10,000 to $16,500, U.S. makers of cars, electronics, mechanical machinery, and various consumer goods now have a decision to make.
They can:
Eat it and pay 65% more for the same materials
Find a domestic source of aluminum
Change or slow down production
No matter what these companies choose:
They can be among the more challenged sectors when tariffs are levied.
The 'winners' here tend to be the domestic producers of aluminum (i.e., the subject of the tariffs).
Portfolio Implications
As companies and supply chains react to tariffs, elevated materials costs can be passed on to consumers. With that:
Retail prices can balloon
Price hikes can spark inflationary pressures and concerns
Consumers can become highly price-sensitive, altering their spending habits
Companies with domestic sourcing may gain a competitive edge and/or enjoy higher profit margins
Those with global supply chains can fall behind and see profits plummet
Concerns about retaliatory tariffs can amplify uncertainty and fuel even more market volatility
All of that and more can influence portfolio performance and risk exposure.
In the News: The 2025 tariffs have hit clothing and textiles especially hard, driving short-term price hikes of 31% for shoes and 28% for apparel. Over the long term, the prices of clothing and shoes will reportedly stay 15% to 17% higher than pre-tariff times.
Example: If you invested in a company that depends on international suppliers, you could feel the pinch if that company starts to underperform. If you diversified your investments, you could be more insulated from the disruptions and reactions to tariffs.
Action Items
So, how can understanding tariffs translate into smarter financial decisions for you?
You can't alter global trade policy, but you can control your preparedness for its effects and how you react to new tariffs. This is the true value of understanding tariffs. It's not just about knowing what they are or following headlines; it's about recognizing how policy can impact your supply chain, your grocery bill, or your portfolio performance.
While breaking down these complexities can be challenging, it's crucial for identifying your vulnerabilities and ensuring your current financial strategy can adapt to policy changes. However, tariffs aren't the sole determinant of your financial future. It's about staying aware of avoidable risks and seizing new opportunities.
If you have any questions or want to review your current financial strategy, feel free to reach out.
~Alex
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