Darwinian firms adapt to tariffs and lift stocks higher

After the initial shock of President Donald Trump’s tariff hikes in early April, stocks have shown a remarkable ability to bounce back. The S&P 500 equity index is trading close to all-time highs, led by a sharp recovery in technology stocks.

This may be because of the TACO trade (short for Trump Always Chickens Out). This describes the market’s belief that Trump will not follow through on his most extreme policy threats and/or the economic impact won’t be as negative as feared. The latest round of tariff increases on major US trading partners, such as Japan and South Korea (each facing 25% tariffs), was largely ignored by investors.¹

Perhaps a key message from the tariff increases for investors is that stocks have shown a remarkable form of corporate Darwinism, which at its core is about adaptability, making dynamic changes to preserve earnings and shareholder value. These include:

Price increases: Many multinationals are passing higher costs onto consumers through price hikes to maintain profit margins. For instance, in late April after the US tariff increases, household product manufacturer, Procter & Gamble said it would sell new products at higher price points and look to raise prices for some existing ones.² In mid-April, Sony increased prices for its PlayStation 5 Digital Edition in several regions. Prices rose by approximately 10% in both the UK and Australia, 11.1% in Europe and 11.6% in New Zealand.³

Supply chain changes and onshoring: Several major companies have shifted production away from China to reduce tariff exposure and strengthen supply chain resilience. Apple now makes 20% of its iPhones in India, aiming for 25% by the end of 2026.⁴ Unilever has expanded its personal care manufacturing footprint across Southeast Asia and Latin America to lower costs and reduce exposure to US tariffs. Automakers are reshoring production: GM is investing $4 billion in US factories, while Honda relocated Civic hybrid production from Mexico to Indiana, reinforcing domestic supply chains.⁵ Drugmakers such as Pfizer, Eli Lilly, and Johnson & Johnson have announced multi-billion-dollar investments in US manufacturing, aiming to insulate operations from future trade shocks.

Diversified revenue streams: Several AI-driven companies have thrived despite rising US tariffs, thanks to digital business models and domestic infrastructure. Microsoft, Amazon, Meta, and Alphabet rely on cloud services and software—areas largely unaffected by goods tariffs. Even industrial companies like Caterpillar are tapping into fast-growing tech sectors to offset trade disruption. In a recent update, Caterpillar’s management noted that hyperscaler clients are increasingly opting for backup power capacity of up to 150% of their computing needs in hot regions such as Arizona.⁶ 

In short, it is still early days, but businesses have shown a resilience to grow earnings. Analysts have upgraded 12-month forward earnings-per-share (EPS) for the MSCI All Country World Index by 5% so far this year.⁷ Essentially, trade protectionism has had minimal impact on company fundamentals. In fact, profit margins have improved in 2025, now standing at a record 11.5%, compared to just over 9% before the Covid-19 pandemic in 2020.⁸

In true Darwinian fashion, the companies that adapt—not just the strongest—are thriving amid the shifting trade landscape. More broadly, corporate adaptability is lifting overall EPS and supporting the recovery in stocks.

1. MSN.com, Wall Street Index In Freefall After Trump Slaps 25% Tariffs On Japan And South Korea, July 2025
2. USnews.com, P&G Looks to Raise Prices as Tariffs Hit Costs and Force Forecast Cuts, April 2025
3. CNBC.com, Sony raises PlayStation 5 prices in Europe, April 2025
4. The Economic Times, Apple India produces $22 billion of iPhones in a shift from China, April 2025
5. Automotivedive.com, GM is investing $4B in three plants to boost domestic production, June 2025
6. Caterpillar Inc, notes from the road, Goldman Sachs, 18 June 2025
7, 8. LSEG, Evelyn Partners