How Tariffs Work and What the Ongoing Tariff War Means for Your Investments?

How Tariffs Work and What the Ongoing Tariff War Means for Your Investments?

Trade wars may seem distant geopolitical events, but their impact on your mutual funds, equity portfolios, and even inflation in India can be significant. As global economies clash over tariffs, understanding how these policies work can help you make informed investment decisions in volatile times.

What Are Tariffs?

Tariffs are taxes imposed by one country on imported goods from another country. The purpose is typically to protect domestic industries by making foreign goods more expensive.

Example: If India places a 20% tariff on Chinese steel, the cost of importing that steel rises — making Indian steel more competitive.

  • Import Tariffs: Taxes on goods coming into a country.
  • Export Tariffs: Taxes on goods leaving a country (used to preserve domestic supply).

Recent Developments in the US-China Tariff War

As of April 2025, the trade tensions between the United States and China have escalated dramatically:

  • April 2: President Trump declared "Liberation Day," announcing a 10% universal tariff on all imports, with higher rates for specific countries. China faced an additional 34% tariff, bringing the total to 54% on Chinese goods.
  • April 9: The U.S. increased tariffs on Chinese imports to 104%. China retaliated with a 34% tariff on all U.S. imports.
  • April 11: The U.S. further raised tariffs on Chinese goods to 145%. China responded by increasing tariffs on U.S. goods to 125%.

These tit-for-tat measures have led to significant disruptions in global trade, affecting various sectors and economies worldwide.

Impact on Global Markets

  • Stock Market Volatility: Major indices like the S&P 500 and Dow Jones have experienced significant declines due to investor uncertainty.
  • Supply Chain Disruptions: Companies reliant on international supply chains face increased costs and delays.
  • Commodity Prices: Prices of commodities like oil and agricultural products have fluctuated due to changing trade dynamics.

Implications for India

India has not been immune to the effects of the U.S.-China trade war:

  • Tariff Exposure: India was subject to a 26% tariff under the U.S.'s reciprocal tariff regime but paused later for 90 days. However, a 10% tariff still applies.
  • Trade Opportunities: As companies seek alternatives to Chinese suppliers, India has an opportunity to attract foreign investment and become a key player in global supply chains.
  • Economic Strategy: India is preparing tariff cut plans to enhance trade relations with the U.S. and integrate more deeply into global supply chains.

Investment Strategies in a Volatile Environment

1. Diversify Across Sectors & Geographies

Don't overexpose to one geography or industry. Global equity funds and multi-cap mutual funds can help cushion domestic shocks.

2. Focus on Domestic Demand-Led Stories

In times of external shocks, sectors that rely on local demand — like banking, FMCG, and healthcare — can provide more stable returns.

3. Hold Some Gold or Debt

Volatility often drives gold prices higher. Short-duration debt funds can offer stability when equity markets turn choppy.

4. SIP Through Volatility

Continue SIPs. Don’t pause due to noise. Volatile periods often deliver better average rupee cost over time.

5. Avoid Knee-Jerk Reactions

Tariff wars are cyclical and politically driven. Avoid panic selling or large reallocations based on headlines.

Final Thoughts

Tariff wars may not be within our control — but how we respond to them as investors is. Instead of reacting emotionally, this is the time to:

  • Stick to long-term goals
  • Maintain SIPs
  • Monitor asset allocation
  • Seek professional advice if needed
"In investing, what is comfortable is rarely profitable." — Robert Arnott

Let tariffs be headlines. Let your portfolio be a well-built fortress.

Related Reads

🔗 References

Disclaimer:
  • Mutual Fund investments are subject to market risks.
  • Please read all scheme-related documents carefully before investing.
  • Past performance is not indicative of future returns.
  • Investors are advised to consult their financial advisor before making any investment decisions.
  • This blog is for informational purposes only and does not constitute an offer or solicitation to invest in any financial product.
  • Wealth North does not guarantee returns or assume responsibility for investment outcomes.
Back to blog