Tariffs—taxes imposed on imported goods—have become an essential factor for investors to consider. They are typically used to protect domestic industries from foreign competition by increasing the costs of imported goods.

However, tariffs may also used as a geopolitical strategy or a negotiation tactic in trade disputes. Regardless of their intended purpose, tariffs can significantly impact businesses and economies, affecting investment returns. Investors can adjust their strategies and portfolios with tariffs in mind in several ways.

Focusing on domestic companies

One way that investors can respond to tariffs is by focusing on domestically focused companies. Companies that generate most or all of their revenue domestically should be less affected by tariffs and trade disputes than companies that rely heavily on international trade. Similarly, industries less insulated from global trade, such as manufacturing, might be a suitable strategy in a tariff-heavy environment.

Portfolio diversification

Another investment strategy with tariffs in mind is diversification. Diversification is a well-established concept in investing that helps manage risk. By spreading investments across different assets, sectors, and regions, investors can manage the impact of any single investment going bad.

Diversification means investing in different sectors and countries. By investing globally, one manages exposure to any one country's tariff policies.

Practice adaptability

Investors may also consider companies that have demonstrated adaptability to tariffs. Some businesses have successfully navigated the tariff landscape by rejigging their supply chains, negotiating with suppliers, or passing costs to customers.

It is important to note that while tariffs can create adversity, they can also create opportunities. For example, if a tariff is applied to a foreign product, it may provide an opportunity for a domestic company producing a similar product to increase its market share. For investors, this could mean a chance to invest in companies that stand to benefit from the tariffs.

Stay informed

Reading trends and predicting the impact of potential tariffs can be challenging for even the most seasoned investors. Investing with tariffs in mind is about managing losses and maximizing gains by understanding the global economic landscape while mitigating risks.

It requires a keen understanding of international politics and economics. Therefore, it's vital to rely on guidance from a financial professional who understands how tariffs and other macroeconomic factors impact specific investments.

Important Disclosures:

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

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Sources:

https://www.forbes.com/sites/rhettbuttle/2025/04/02/tariffs-how-they-work-and-who-is-being-impacted/

https://www.investopedia.com/terms/t/tariff.asp