Tariffs, Tension, and Risk: How Trump’s Trade War Is Reshaping the Insurance Landscape

President Trump has ignited global trade tensions with the rollout of a sweeping new tariff regime to promote domestic manufacturing and aimed at what he calls restoring balance to America’s economic relationships. This includes placing elevated tariff rates on dozens of countries running trade surpluses with the U.S., along with a dramatic escalation of duties on Chinese goods–some reaching a whopping 145%.

As of this writing, the tariffs affect imports from the European Union, Japan, South Korea, and many other nations. And while a 90-day pause has been granted for most countries, China was explicitly excluded, prompting swift retaliation in the form of tariffs of up to 125% on U.S. goods and a halt on exports of rare earth metals critical to American manufacturing and defense. In response, financial markets have suffered their worst declines since the outbreak of COVID-19, which may have prompted the Trump administration to temporarily carve out exemptions for popular consumer electronics like smartphones and laptops. Still, the economic landscape remains anything but stable.

For the insurance industry, these developments present no direct regulatory threat–but they do create a host of second-order risks that are increasingly difficult to ignore. Insurers depend on stable markets, healthy businesses, and predictable economic cycles. Tariffs undermine all three to the extent they rattle investment portfolios, disrupt commercial activity, and destabilize global supply chains. As a result, insurers must recalibrate everything from asset allocation strategies to underwriting assumptions, while identifying new opportunities to provide value in an increasingly uncertain world.

The challenge now is less about bracing for impact and more about adjusting to a new normal.

Markets on Edge, Portfolios in Flux

At the heart of the insurance sector’s exposure to tariffs lies its dependence on investment returns. Most carriers maintain large, diversified portfolios–particularly in fixed income–that generate income to fund operations and pay claims. While these portfolios are generally conservative, they’re not immune to the turbulence that tariffs introduce into global markets.

For instance, as tariffs increase input costs and fuel inflationary pressure, the Federal Reserve may be compelled to reverse course and raise interest rates. Higher rates, in turn, can benefit insurers by lifting yields on newly acquired bonds. But they also erode the value of existing bond holdings–particularly concerning for insurers with long-dated portfolios.

Moreover, if tariff-driven disruptions begin to squeeze corporate margins, bond defaults may rise–especially in exposed sectors like manufacturing, agriculture, and retail. For insurers, this represents a double hit: weakening asset values and rising credit risk.

Equity holdings are also vulnerable. Market volatility triggered by global trade uncertainty can whipsaw stock prices, impacting insurers’ capital positions and, potentially, their risk-based capital ratios. It’s a reminder that while tariffs are set in Washington, their financial fallout is global–and deeply systemic.

Commercial Lines Caught in the Crossfire

Beyond investment portfolios, tariffs can have a chilling effect on the underlying demand for insurance products–particularly in commercial lines. When international trade diminishes, factories idle, or businesses close, the need for coverage decreases accordingly.

Take marine and cargo insurance. A decline in import and export activity means fewer goods in transit–and less revenue for insurers writing those policies. Similarly, business property, general liability, and workers’ compensation policies tied to sectors reliant on international inputs or customers may see falling premium volumes as those businesses slow or shutter. For insurance companies with concentrated exposure to trade-intensive industries, the revenue impact could be meaningful.

Tariffs also tend to stall capital investment. Companies uncertain about the cost of inputs or the reliability of supply chains often defer expansion plans. That means fewer insurable assets–new plants, equipment, inventory–to bring into the fold. In short, tariffs don’t just constrict global commerce; they shrink the insurance universe.

Business Interruption Gets Political

In the wake of COVID-19, business interruption (BI) insurance evolved from a niche offering into a frontline coverage. Now, it’s being tested again–this time by political risk. Supply chain breakdowns caused by retaliatory tariffs or blocked access to raw materials can halt production, cancel orders, and lead to significant losses for policyholders.

For insurers, this raises hard questions. How should BI policies respond to government-imposed trade barriers? Are tariffs a covered cause of loss? Do existing models account for politically driven disruption in an increasingly polarized world?

Many insurers are already re-examining their BI and contingent business interruption policies, factoring in broader geopolitical exposures. This includes not just the risk of claim frequency but also the adequacy of pricing in industries increasingly vulnerable to cross-border volatility. As trade risk becomes harder to quantify, coverage terms and exclusions are likely to evolve–potentially prompting both litigation and innovation.

A Catalyst for New Products

But it’s not all doom and gloom–there’s also opportunity. As businesses seek protection from tariff-related losses, insurers have an opportunity to develop new, targeted offerings. Much like cyber coverage or pandemic-triggered policies emerged from specific market needs, tariff-related products could be the next frontier in risk innovation.

Imagine custom policies designed to protect manufacturers, importers, and exporters against cost overruns, supply chain disruptions, or shipping delays tied directly to trade policy. These policies might be structured around clearly defined triggers–such as the imposition of a new tariff rate or the suspension of a trade agreement–and calibrated to particular industries.

Reinsurers, too, can adjust their pricing and portfolio strategies, using AI and advanced analytics to model tariff-sensitive risks more precisely. By identifying exposure across verticals like electronics, automotive, agriculture, and construction, insurers and reinsurers can rebalance away from volatility and toward more resilient sectors like domestic services, infrastructure, and health care.

Strategic Investing Amid Volatility

On the investment side, market swings caused by tariff anxiety may offer well-capitalized insurers the chance to act offensively.

A dip in equity valuations could unlock value for long-term investors. Rising interest rates–if managed carefully–can improve overall portfolio yield. The key is managing duration risk and ensuring liquidity remains nimble.

Sophisticated insurers will need to complement tactical investing with broader scenario planning–stress testing their portfolios not just for recession risk or rate shock but for geopolitical tension and prolonged supply chain instability. The organizations that can turn volatility into calculated opportunity may find themselves strengthened, not diminished, by the shifting economic tides.

Looking Ahead

As of mid-April 2025, the contours of the trade war are still being drawn, and the full implementation of tariffs is not yet complete. But the message is clear: We’ve entered a new phase of economic nationalism–and insurers must adjust accordingly.

Tariffs may seem peripheral to the business of insurance, but their ripple effects are anything but. They touch asset performance, policy demand, and claims behavior. They demand new thinking in underwriting, product design, and capital deployment. Most importantly, they remind the industry that systemic risk is no longer confined to storms, markets, or pandemics–it’s increasingly shaped by politics.

In a time of rising uncertainty, the insurance industry’s mandate is unchanged: assess risk, price it correctly, and be ready when the losses come. What’s changed is the nature of that risk–and the speed with which it arrives.