Will Trump's trade war trigger a market meltdown? What history reveals and how to protect your investments now

Chris Clark

Wed, Apr 9, 2025, 5:00 AM 4 min read

Wall Street hates uncertainty. But that’s exactly what investors are wrestling with as President Donald Trump doubles down on his aggressive tariff policies.

Tariffs, essentially taxes on imports, are designed to level the trade playing field and protect domestic industries.

But they raise costs for businesses and consumers, disrupt global supply chains and strain diplomatic relationships. All this shakes investor confidence, leading to volatility and downturns on Wall Street.

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Within two days of Trump’s global tariffs announcement, the S&P 500 tumbled 13% — well into correction territory. Economists are ramping up their recession forecasts

Could his trade war tip the stock market into a full-blown meltdown? History suggests things could definitely get much worse.

The S&P 500 tracks 500 large U.S. companies that represent 80% of U.S. equity market value. Its performance is often synonymous with "the market," making it a core holding in 401(k)s, IRAs, and target-date funds.

The index typically sees significant declines during economic downturns. For instance, the S&P plummeted by 49% during the tech bubble burst in the early 2000s, by 57% during the Great Recession (2007–2009), and saw a swift 34% decline during the relatively brief COVID-19 crash in 2020.

What these historical insights suggest is that the current dip could be the tip of the iceberg. Investors could face serious financial setbacks.

Older investors might find their retirement nest eggs shrinking at the very moment they planned to rely on them, triggering anxiety and difficult decisions.

As stock markets plummet, many investors' first instinct is to pull money out and stash it in cash or safer assets. But timing the market — trying to predict peaks and troughs — is notoriously challenging and typically backfires.

Read more: Trump warns his tariffs will spark a ‘disturbance’ in America — use this 1 dead-simple move to help shockproof your retirement plans ASAP

Instead, consider these smarter, more strategic moves:

• Stay diversified. Spread your investments across asset classes — stocks, bonds, cash, real estate — to mitigate risks. If one sector tanks, your entire portfolio won't go down with it.

• Evaluate your risk tolerance. Are you losing sleep over market swings? You might be overexposed to stocks. Consider shifting to bonds or other safer, income-generating investments to provide stability.

• Don’t stop investing. If you’re younger, a downturn can actually benefit your portfolio long-term as you can buy shares at discounted prices. Taking advantage of dollar-cost averaging as you continue to invest regularly means you're setting yourself up for greater returns when markets rebound.