Tariffs are still causing concern among investors, but they’ve been largely left out of my stock predictions for 2026. Why is that? We can think about it in terms of the “four e’s”: expectation, exemption, avoidance, and enforceability. These factors suggest that the ups and downs of President Trump’s trade policies are likely to do more harm than good to the economy.
It’s important to remember that tariffs are generally detrimental, especially for the country that imposes them. This explains why U.S. stocks lagged compared to global stocks in 2025. The new comprehensive 10% global trade tax, which followed the Supreme Court’s decision against Trump’s “Emancipation Day” tariffs, isn’t good news either. His threats to raise it to 15%, cancel the U.S.-UK trade agreement, or impose 50% tariffs on China also don’t help the situation.
However, when it comes to stocks, the element of surprise is crucial. The tariff situation has become old news. Expectations have shifted, and the stock market reflects that change. This is a stark contrast to last April, when the vast scale and oddity of the initial tariff measures rattled the markets. Stocks plummeted, with fears of retaliation and trade chaos driving preemptive sell-offs, but those fears were exaggerated for several reasons I outlined last May.
In 2025, global trade made a recovery with growth at 3.4%. Interestingly, even China’s exports, which were directly targeted by Trump, increased by 5.5%, despite significant drops in shipments to the U.S. So, how did stock prices bounce back?
Let’s explore the second “e”: exemption. During Trump’s tenure, over half of U.S. imports were exempt from duties due to various court judgments. For instance, items like smartphones and semiconductor chips were excluded. Many pharmaceuticals and materials, including nickel, tin, and even coffee, were ultimately exempted after public pushback. The new 10% global tax does allow for some exemptions as well.
Next, we have “avoidance.” Companies found ways around tariffs, such as through transshipment to intermediate hubs with lower tariffs. For example, China’s exports to Southeast Asia soared, and U.S. imports from those countries jumped by 29% in 2025. This isn’t just coincidence; it’s clearly a result of transshipment strategies. Other, more questionable methods of evasion have also gained traction.
Now, onto the fourth point: execution. There are numerous hurdles. When the tariffs kicked in, U.S. Customs and Border Protection (CBP) only had about 2,500 agents overseeing countless entry points. The recruitment and training of new agents have proven challenging. Hence, in fiscal 2025, CBP managed to conduct only 465 audits across more than 50 million incoming shipments.
The reality is that in a globalized market, navigating tariffs is complex. Very few products come from a single country. If something is designed in the U.S., manufactured in Vietnam, and incorporates parts from multiple nations, identifying the country of origin becomes murky. What tariff rates apply in such cases?
Consequently, the effects of tariffs may not be as detrimental as initially feared. Back in April 2025, the World Bank estimated U.S. tariffs to average 28%. By January, that number had decreased to 17%. In reality, actual tariff rates hovered just under 10% of the value of imported goods. A ruling from February brought that down to around 8%, meaning that if Trump attempts to raise global tariffs to the maximum legal limit of 15%, those would effectively still settle back to 10%, once legal challenges are resolved. So, while not ideal, the situation is much better than many had anticipated.
Finalizing trade agreements could further soften the blow of tariffs on the global economy. Trump enjoys negotiation and often uses the threat of tariffs as leverage to strike new deals, such as those made with Taiwan, China, Japan, the UK, and India (though the latter hasn’t been signed yet). Other regions are also engaging in similar tariff negotiations, with the EU making arrangements with the UK, India, Mercosur, and more. Britain and India have secured their agreements as well, with more on the horizon.
Ultimately, the significant tariff impacts that many worried about—or some even welcomed—are simply not materializing. The “four e’s” help to explain that dynamic. Stocks picked up on these changes last year, but not everyone acted on that insight. Perhaps now is the time to consider doing so.
