14% Tariffs and Stock Market Corrections: What Every Investor Needs to Know

Introduction

Hello and welcome to this month’s market update for June 2025. My name is Steve Latham and I am the chief investment officer for Bernicke Wealth Management. In this month’s edition, we’re going to be looking at what the current landscape looks like for tariff policy.

We’ll end with a review of historical drawdowns for the stock market every year. By looking at how the stock market ends up at the end of the year, I think it will provide a little bit of perspective for some of the volatility that we tend to see in these brief periods, but then see how the overall market really performs absent that volatility.

The Current U.S. Tariff Landscape

To start, we’re going to take a look at the landscape of what the current tariff policy is, implemented from the United States’ standpoint, and how that is impacting the overall globe.

There has been a lot of news about how the current tariff policy could potentially not be implemented as a result of a lawsuit against the current administration. However, I think that kind of misses the point of what tariffs are being used as from the current administration’s perspective. Even if the way that they’re implemented today is eventually shot down by the courts, there are still other avenues that the administration could take in order to enact tariff policy. It may not be as efficient or straightforward from their perspective, but at the end of the day, tariffs are still a lever that they can use. So it’s something that we want to make sure that we’re still keeping an eye on, especially as the 90-day detente in the existing tariff policy draws to a close here at the beginning of July.

Trade-Weighted Tariffs: From 2.5% to 14%

What we see in front of us here on this chart is the overall trade-weighted tariffs that are enacted on other countries outside of the United States. On the left-hand side here, we see that prior to all of the tariffs that have been implemented by the administration, about 2.5% of all trade done with our foreign trade partners was tariffed on a trade-weighted basis. As you go, column by column, all the way over to the right, you can see how every other trade policy has been impacted by overall trade-weighted tariffs, to the point where if everything that is on the table today stands at the end of the 90-day period, the overall trade-weighted tariff is going to be around 14%.

That’s quite a sizable hike, but I don’t think it’s as big as what a lot of people believe it would have been, given the large numbers that were being thrown around during the April 2nd Rose Garden administration announcement. You can see how some of these are specifically related to China. China is obviously our largest trade partner. If that large tariff of 145% were to have stayed in place, that would have represented an almost doubling of the trade-weighted tariffs. But that has since been removed as the two countries are at the negotiation table.

Historical Perspective and Sector Impacts

So what does that look like from a historical perspective? Fourteen percent doesn’t seem like a lot, but it’s certainly higher than where we started at around 2.5%. If we look at how tariffs have been implemented over the years, and this goes all the way back to 1820, we can see that even though 14% isn’t on an absolute basis really high, it’s still really high compared to where we’ve been in modern history. You have to go all the way back to the 1930s to see a tariff rate that is anywhere near the current 14% assumed trade-weighted tariff.

So we are still elevated, and it means that we still need to keep an eye on what the eventual policy ends up being. It doesn’t mean that this is going to be catastrophic in any way, but it certainly means that it could be impactful for specific sectors of the market, especially if the administration needs to pivot to sectoral tariffs, focusing on aluminum and other pharmaceutical-specific tariffs. They could be doing that more on a sectoral basis, as opposed to a country basis where the overall country was hit with a specific tariff.

More to come on that. Of course, there are still negotiations happening, but we wanted to give an update and provide a little perspective of where the current tariff landscape is ahead of that 90-day detente. That, again, is hopefully going to be resolved here by the beginning of July.

Market Corrections and Historical Drawdowns

Now, to finish up the market update video, I wanted to provide some perspective, because we did see a very dramatic move in the market in April. We have seen it come back all the way to a positive level for the year for the S&P 500 since that significant drawdown in April.

What I think a lot of people may miss is that these things happen a lot. They don’t always happen for the same reason, but drawdown plans in the market are just a function of the market in general. We don’t always know why they’re going to happen. If we knew why they were going to happen, the drawdown wouldn’t exist because the market is, in effect, an efficient market.

So when we do have these pullbacks, it’s because something came out of left field. The reason for that isn’t always going to be known ahead of time. What this chart attempts to show is, for every year going back to 1950, what the overall return was for the S&P 500. That’s in the middle column for each of these three columns.

Then, what the drawdown—the furthest retrenchment of the S&P 500—was within that year. Just starting in 1950, in the top left-hand column, we can see that the overall S&P 500 returned for the year 30.8%. But within that year, the market pulled back 14%. That would be defined as a correction. A correction is any time the market pulls back more than 10%.

If you go through the list of every year all the way back to the 1950s and coming up to 2024, you can see that more often than not, you do have a pullback of more than 10%. These corrections often occur once about every 18 months. Alongside that, though, you can see that the market overall is generally positive at the end of those years.

Yes, of course, you do have years where the market pulls back just as much as that retrenchment or it’s not positive throughout that year. But by and large, the market continues to advance as the economy continues to grow. Volatility is a function of the markets and occasionally it comes really quick. But more often than not, if we can stomach that volatility, keep that long-term plan in focus, and continue to invest without taking our emotions into account, you’ll eventually find yourself on the better end of that long-term plan as the market continues to advance and economies continue to grow.

We do see that these corrections are a function of the market. They’re not fun when they happen, but at the end of the day, they are just a part of the market. We continue to believe that despite the fact that these corrections do happen, the market and our economy in general, as it stands today, is still in a really solid place.

Closing and Contact

If you have any questions about what we reviewed today—tariffs, the economy, potential situations in Washington—please don’t hesitate to reach out. We’d love to have a conversation with you. Thank you.