u/EveryPassage

The average US tariff rate has increased from 2.6% in 2025 to 13.7% in 2026, effectively acting as a large tax on imported goods. This significant increase in tariffs raises costs for businesses and consumers, squeezing margins and reducing disposable income, which disproportionately harms smaller, more domestically-focused companies that are less able to absorb these costs compared to large multinationals. The tariff-induced economic drag is likely to hit small-cap companies (represented by IWM) the hardest, making them a candidate for a short position as the economy weakens. The government could reverse the tariff policies. Small-cap stocks could rally if the market anticipates a Fed pivot to easier monetary policy in response to the economic weakness.