How Trump’s Tariffs Will Affect US Stocks

The impact of Trump's threat of 'trade wars' on the American stock market

6Mar

President Trump seized global headlines again recently after threatening a massive trade war with nations that the United States has a trade deficit with. The incendiary tweet that ignited a flurry of headlines sent the U.S. dollar plunging, and has many analysts concerned about the future of U.S. stocks.

Investors holding their breath can relax; the president almost certainly won’t start a massive, international trade war. That doesn’t mean his tariff plan won’t affect US stocks, however; the genie is out of the bottle, and the U.S. market will continue to feel the reverberations of President Trump’s tariff terror for months, and possibly years, to come.

Sound and fury, nothing more

After President Trump tweeted that 'trade wars are good,' markets around the world responded logically; that is, they panicked, and stocks everywhere sunk. The U.S. dollar in particular suffered from the president’s social media musings, and investors everywhere began eyeing U.S. steel stocks with particular fears that they would be the first to go. The market has thus far averted a total economic collapse, however, and despite the intense rhetoric being bandied around the globe presently, it’s unlikely President Trump’s desired trade war will ever surface.

Does that mean that U.S. stocks are in the clear? Far from it – American businesses will by mired down by this political flub for years, as economic uncertainty now clouds the market from sea to shining sea. U.S. stocks posted small gains in the days following their initial plunge after the president’s errant tweet, but a broader specter of confusion lurks over investors’ shoulders at every turn, and will bog down economic performance for the next few months at least.

If President Trump’s 25% tariff on steel were to ever materialize, US stocks can expect to suffer for it; red states in particular stand to lose from a trade war, as European politicos, savvy as they are, understand that targeting domestic markets populated by Republicans will be a good way to force the president’s hand on this issue. The broader U.S. economy would face many hurdles it currently doesn’t have to worry about, and the soaring stock prices so many have enjoyed recently would almost certainly come crashing down with a fiery intensity.

While President Trump’s proposed tariff plan was so greatly unexpected and fundamentally illogical that it drew sharp rebukes from his fellow leaders of the Republican party, that doesn’t mean it’s dead, however; while a trade war will almost certainly not materialize, investors should expect the president to keep flouting the plan, as he often does with most of his proposed initiatives. Consider his other political negotiations, for instance; be it an immigration deal on DACA or an attempt to repeal the Affordable Care Act, President Trump has routinely refused to give up on political issues after the tide has turned against him, and may continue to beat the dead horse of a trade war to inspire headlines for days or weeks to come.

Keep an eye on congress

Investors hoping to determine the future health of U.S. stocks after President Trump’s tweet should keep their eye, oddly enough, on the halls of congress as opposed to the White House. If Republican legislators like House Speaker Paul Ryan and Senate Majority Leader Mitch McConnel push President Trump to drop the prospect of a trade war as hard as they’re expected to, investors can breathe easy. Should the GOP fail to take the bait being offered by major American trading partners, however, then market analysts can expect the president to continue pushing his folly with a degree of success, and start sweating.

Such developments are unlikely; with consumer confidence at an all-time high and U.S. stocks soaring and services like Vanguard doing brisk business, a trade war would be incredibly detrimental to U.S. stocks, and would likely spell the end to the current administration. Investors should instead concern themselves with the uncertainty that’s currently clouding markets thanks to President Trump’s incessant tweeting, and should consider shunning volatile steel and aluminum stocks which may suffer from future headlines.

With world leaders pushing back harshly on President Trump’s tariff claims, it would typically be safe to say he won’t chase them. This president, however, has shown that he’s anything but predictable, and shouldn’t be expected to let this issue go only because his advisers are pushing for him to move on. Keep your close eye on headlines in the immediate future, and have an ear open for future presidential tweets if you want to be immediately in the loop.

With millions of Americans dependent on the steel industry for their own gainful employment, it would be unspeakably disastrous to ignite a steel-led trade war. The innate folly of war, be it a trade one or not, has never stopped them from happening before. However; until this administration has safely departed from 1600 Pennsylvania Avenue, investors can expect more turbulent headlines spearheaded by the president’s emotions rather than cool-headed economic policy to dominate stock values.

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