My blog inbox and my professional inbox exploded last week with tariff questions.

At first, I thought, “Everyone’s already talking about it…do I really need to add my voice to the fray?”

But the questions kept coming. And after two terrible red days on Thursday April 3 and Friday April 4, the futures market looks glum heading into Monday April 7. So, like it or not, here are my two cents.

I wrote this Q&A. My goal is to make it rapid-fire and easy to consume. If you’re sick of tariff talk, skip it. If you know everything already, skip it. But if you want a simple-yet-thorough breakdown, let’s chat for four minutes. Here we go…

What’s a Tariff?

It’s a tax that a government (the USA, in this case) charges on a foreign import. The tax is typically a percentage of the price that the domestic buyer pays to the foreign seller.

Why Enact Tariffs?

The glass-half-full rationale is mainly:

1. To protect domestic industries against cheap foreign labor.
2. And as leverage against foreign economies. e.g “our tariffs will make your lives harder, so come to our table and negotiate.”

But, more likely than not, the self-inflicted pain of tariffs far outweighs the benefits.

Who Actually Pays For the Tariff?

Just about everyone.

On their face, we already said the importer pays the tariff to the government. But the importer doesn’t want to stomach that entire bill itself. The importer will pass some of those costs on to both the foreign exporter and the eventual buyer.

We all pay.

So, Tariffs Are Bad?

Regardless of economic or political loyalty, most economists agree that tariffs are more bad than good.

They cause inflation and slow down economies. This duo of effects is called “stagflation,” and it’s bad.

Why Did the Markets Drop?

Market prices are all about expectations. What do we think will happen, and what would the appropriate stock price be in that case?

President Trump’s tariff announcement, and the subsequent 14% (and counting) selloff, made two things clear:

1. Many investors were uncertain whether Trump would follow through with the threat of tariffs.
2. And if he did follow through with tariffs, many investors underestimated the magnitude of those tariffs.

The announcement was significantly worse than expectations. Hence, a rapid, significant price correction.

How Can *Everything* Be Down? / How Can *Nobody* Benefit?

US stocks are down (10%).

International stocks are down (6%).

Bonds are flat-ish. (up about 1%)

Real Estate is down (8%)

Gold is down (4%). Other commodities down too (6%).

How can everything be down?! Surely someone in the Economy wins?

The answer: tariffs are a tax that everyone pays for, in some form or another. The extra costs are felt in all corners of the economy.

The only “winner” in terms of dollars and cents would be the government(s) who collect the tariff.

And a government collecting more revenue doesn’t stimulate the economy.

Why Is This Time Different?

The famous saying is, “The four most dangerous words in Investing are, ‘This time is different.’“

And in some ways, this time is NOT different. I’ve written many posts about market history, including the frequency of choppy markets.

But in one major way, yes, it feels different. I plan to write a separate article to address this idea more completely.

This feels different because it’s self-inflicted.

Sports fans, for example, expect that their team could lose. It’s the nature of the game. But we don’t expect our own player to turn around, run the wrong way down the court, and slam dunk on his own basket to lose us the game. That’s not the kind of loss we expect.

This tariff tantrum sell-off feels like that. Or as other commentators have written,

• “He pressed the red button.”
• “He shot the hostage.”

Everyone agreed how bad it would be if we pressed that button, shot that hostage, dunked on our own basket. And yet, here we are. That feels different.

But Markets Always Come Back, Right?

So far in history? Yes.

Eventually, yes.

Still, that’s not a reason to “feel good” about current market conditions.

And, as I’ve written about before, it’s pretzel logic to assume that markets will always come back.

They Say, “You Can’t Beat the Market.” How Was the Market “Wrong” By 10% over Two Days?!

Market values are a representation of the average investor’s opinion on appropriate pricing.

And again, this selloff proves that the average investor either:

1. Was unsure if Trump would follow through on tariff threats, and/or
2. Was optimistic on the magnitude of what the tariffs would look like.

Should I Sell All My US Stocks? All International Stocks? All Stocks?

I pound the table here and on the podcast that stocks are a long-term investment. For most of us, a 10+ year investment.

This is a cool chart. It shows VT (Vanguard’s Total World Stock ETF). It has 10 years of data. It is inflation-adjusted, meaning the returns show a true increase in purchasing power. And it includes the past couple days of turmoil. Dividend reinvestment is included.

Even including the recent days, and despite the constant drag of inflation, an investor’s real returns (real!) have been 6.2% per year! (without inflation, or in nominal terms, it’s 9.8% per year)

The point being, when judged on the 10+ year timeline that I think about, stocks have been a wonderful investment over the past decade.

Now, will that continue for the future? I don’t know. Nobody does. But I am betting on it.

Are You Rebalancing?

It might sound crazy, but yes. I am still following my personal predetermine rebalancing rules.

In other words, I am not selling stocks. I am buying stocks.

It’s not easy. But this is the way.

Personally, I rebalance both based on calendar and on thresholds. Meaning, I rebalance every 6 months, simply to ensure that I won’t go years without doing it. I’ll also rebalance when my portfolio allocations go more than 5 percentage points off target.

Will Tariffs Affect My Monthly Budget?

Most likely. Tariffs are inflationary, as a portion of the tariff tax gets passed through to final prices we all pay.

Will Tariffs Affect My Job?

Possibly. As businesses struggle to cope with increased costs, they could look to cut labor costs (a.k.a. lay off their staff).

If you don’t have a substantial emergency fund, consider building one now.

Will Tariffs Affect My Business?

Certainly, for the same reasons listed above.

How Should I Feel? (And How Do You Feel, Jesse?)

Well, not great. Again, the self-inflicted nature of this feels bad.

But, this is the magnitude of risk I signed up for when investing in stocks in the first. Actually, I take that back. I signed up for WAY more potential downside risk than this.

From the rooftops, I’ll shout that stocks can and likely will again go through (-50%) drawdowns, or more! This drawdowns can last months, perhaps even a few years. We are not there yet. Not even close.

As I type this, I’ve been refreshing the S&P 500 futures price from (-3%) to (-4%), and soon it looks like (-5%). It’s only been 90 minutes! This feels like a the classic combination of:

1. Yes, something fundamentally bad is happening, and that should negatively affect stock prices. And…
2. Panic. First-order fear is pushing investors to sell. Others see/feel/predict that fear, and are trying to dump their stocks before it gets too bad (second-order fear). This is not fundamental. It’s the opposite of the positive euphoria that creates bubbles. Never forget: Mr. Market is a manic depressive.

Yet, I will stay the course.

I won’t panic.

The market can rip positively, too. It has before. And it’s impossible to predict that future.

And if all else fails, read this letter I wrote myself in case of a market crash.

(Read these links above! They’ll help!)

Good luck, and let me know how you’re doing.

All the best,

Jesse

Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.

On that note, our podcast “Personal Finance for Long-Term Investors” is by far outpacing this written blog. Tune in and check it out.

-Jesse

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Jesse Cramer Writer & Financial Planner

Jesse Cramer is the writer of The Best Interest blog, the voice behind The Best Interest Podcast, and works full-time as a fiduciary financial planner for Cobblestone Capital Advisors in Rochester, NY.