Do Tariffs Mean a Recession?

I know—it’s been a minute since I updated the blog, but I’m back!

A lot has happened since last November, including some big news on our end: the official announcement of our firm’s partnership with CPA firm Schaffner, Knight, Minnaugh & Co., P.C. This is a major milestone for One-Up Financial and something I’ve been working on for years. I’m incredibly grateful and fortunate to be collaborating with such talented, hardworking professionals. But enough about me—there are more pressing matters at hand.

Let’s talk markets. Specifically, the intersection of tariffs, volatility, and the ever-looming "R" word: recession.

Before we get into the nitty-gritty, here’s a quote from J.P. Morgan’s Michael Cembalest that I recently included in our email newsletter (and by the way, if you’d like to subscribe, just shoot me a note at eric@oneupfinancial.com):

"Here’s the interesting thing about the stock market: it cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or defunded; it cannot be primaried before the next midterm elections; and it cannot be seized, nationalized or invaded. It’s the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation, taxation and predictable rule of law.”

You can love or loathe Trump’s tariffs. You can call them toxic or champion them as a means of protecting domestic industries. But here’s the reality: the market doesn’t care about opinions, rants, or tantrums. It's nothing more than a financial scoreboard of buyers and sellers that instantly and unapologetically prices in data from the past, present and future, whether good, bad or indifferent.

And that’s why it’s critical to put aside our biases and examine the facts.

Have Tariffs Worked in the Past?

This is a deceptively tricky question. It all depends on how you define “worked.”

If you simply chart tariffs against the S&P 500, it might look like tariffs have always been successful—after all, markets tend to rise over long periods. But that’s an oversimplification, as we well know, given there are a multitude of factors that impact the market.

Economists measure the effectiveness of tariffs through more targeted lenses: their impact on domestic industries, the trade balance, government revenue, inflation, and the likelihood of retaliatory measures from trading partners.

Sure, we can find moments in history where tariffs had positive effects:

Civil War funding (1861): Tariffs made up about 80% of federal revenue in the mid-1800s.
Harley-Davidson (1980s): Tariffs helped the company regain market share from Japanese competitors.

But there are also well-documented disasters:

Smoot-Hawley Tariff Act (1930): Triggered retaliations from more than 25 countries, causing a 40% drop in U.S. exports from 1929 to 1932.
Steel tariffs (2002): Led to roughly 200,000 job losses, prompting President Bush to roll them back the following year.

The takeaway? Tariffs are a mixed bag. They can work in highly specific scenarios, but they’re often a blunt tool that inflicts unintended collateral damage—especially in a globally interconnected economy. If you ask a room full of economists about tariffs, you’ll likely get a consensus close to this line from Brown University professor of economics Şebnem Kalemli-Özcan:

“American consumers will get hurt.”

Ben Stein, channeling his inner economics teacher in Ferris Bueller’s Day Off, probably would’ve agreed.

Current Tariffs and a Looming Recession

On April 9th, President Trump announced a 90-day pause on most tariffs—except for China, where he actually increased them. The market responded with whiplash-inducing speed: the S&P 500 jumped nearly 10% in a single day, only to fall 4% the next.

Volatility like this should put the VIX—Wall Street’s fear gauge—on your radar. The VIX measures expected short-term volatility in U.S. stocks. A reading above 25 is considered highly volatile, and, spoiler alert: we’re well above that mark.

Now, go back to Cembalest’s quote. The market is a voting machine. And right now, it’s voting against:

Tariff uncertainty
Policy instability
Ad-hoc Twitter diplomacy

Say what you will about “The Art of the Deal”—while that style of negotiating may have won buildings, casinos, and headlines, it’s rattling the global financial system.

J.P. Morgan's CEO Jamie Dimon shared his thoughts on tariffs and the economy with Fox News' anchor Maria Bartiromo in a recent interview:

"Recession is a likely outcome. Markets aren't always right, but sometimes they are right, and I think this time they are right, because they're just pricing in uncertainty at the macro level and uncertainty at the micro level, at the actual company level”

But wait, aren't we overreacting?

Stocks don't always go up, right?

Aren't Drawdowns in the Stock Market Normal?

Like clockwork, analysts, financial advisors, and market pundits take to their respective media platforms in an attempt to calm investors and share their own version of the same chart, which shows annual stock market returns next to intra-year declines. Here's an example from J.P. Morgan:

Since 1980, markets have had average intra-year drops of 14%, yet still finished the year in the green more often than not. Even in 1987, stocks ended the year up 2% after a massive 34% drop thanks in large part to Black Monday.

So, isn’t the volatility we're seeing now just more of the same?

Not exactly.

This time really is different.

In fact, it's always different this time!

Every economic cycle has its own story. Industries evolve. Policies shift. New administrations come in. Interest rates go from irrelevant to impactful. What’s unfolding today is distinct—not just because of the volatility, but because of how much influence one person seems to have over market sentiment. The market is watching Trump’s every move like the Eye of Sauron, zeroed in on Twitter feeds and press briefings.

Be that as it may, I’m not sounding any alarm bells —because yes, this too shall pass. It’s my responsibility as an independent fiduciary and Certified Financial Planner to be relentlessly proactive and help you stay calm, focused and prepared should a recession hit.

Tips for Weathering a Recession

First things first: Do something other than panic. Notice how I didn't say, "Don't panic?" If I told you not to think of a pink elephant, what thought would immediately pop into your brain? A pink elephant.

Go for a walk. Hit the gym. Call your advisor (I’m here!). Talk to a friend, shower, meditate—do anything but hit the panic sell button.

In addition to remaining calm, here are 10 practical tips to recession-proof your finances:

Update your financial plan as things have likely changed recently. I’m doing this for all my clients!
Increase cash reserves and aim for a minimum of 6 - 12 months of living expenses.
If possible (and as applicable), refinance all credit card debt to a 0% introductory rate for the longest duration you can find.
Consider looking into a home equity line of credit to boost your emergency fund (not saying to borrow, just have it available).
Harvest tax losses. Use this selloff as an opportunity to save money on taxes.
If you’re looking to put money to work in the market, tread carefully and have an investment plan with clearly defined rules devoid of emotion (you can’t time the bottom).
Lean on your advisor! My door is always open to discuss your personal financial situation and guide you through tough markets like these.
Avoid going all to cash. Strategic rebalancing is smart—panic selling is not.
Keep politics out of your portfolio. Easier said than done, but essential.
Be cautious with “cheap” stocks. Not all bargains are worth the risk. Like Buffet says, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Final Thoughts: What the Market is Telling Us

Tariffs are not inherently recessionary—but uncertainty is. When businesses don’t know what to expect, they freeze hiring, delay investments, pause earnings guidance, and shrink production. When consumers worry, they save instead of spend. And when the market senses all this, it reflects that sentiment immediately.

So, do tariffs mean a recession? Not necessarily. But mismanaged trade policy, erratic communication, and political brinkmanship absolutely raise the stakes.

History tells us that markets—and economies—do recover. But how deep the pain goes in the meantime depends on how we respond, as investors and as a country.

As always, I’m here to help you cut through the noise, stay grounded in the data, and make smart, forward-thinking financial decisions. If you’re feeling uncertain or need help navigating your next move, don’t hesitate to reach out.

Stay calm. Stay smart. Stay invested.