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Your guide to what the 2024 American elections mean for Washington and the world
The stock market in the US is absolutely hated by President Donald Trump’s tariff proposals. The day after being notified, S&P 500 fell 5 percent, her worst day since 2020, and the pain continued on Friday. Technology shares, small companies and banks are getting the worst. At one level, this is easy to explain: everyone agrees that tariffs will increase costs for US companies and attract their profits, at least in short and medium terms. The shares are priced in part with profits.
Depending on your personal theory of how tariffs work, you may think that the lowest profits and stock prices today are an acceptable price to pay, to say, the highest domestic production and salaries tomorrow. This seems to be what Trump meant when he said the fees would cause “a little concern, but we are fine with that”.
But markets have a greater problem than the prospect of short -term drop profits. Investors and companies can adapt to most things when they know the rules. With Trump, the rules are always changing.
When a new policy is presented, markets should appreciate not only the effects of policy, but an assessment of how long it will last. So the correction we are seeing-as far as writing this, the S&P 500 is 15 percent in all its high time in February-partially an assessment of the damage fees will make and partly an estimate of how long they will last.
But the market has a third, even more difficult evaluation riddle to solve because Trump’s tariff policy will always be a moving target. How do you cherish it?
You can see why looking at how the administration calculates the supposed rates of its trading partners tariffs. The formula is based on the size of the trade deficit of each country with the US, regarding its total exports to the US “reciprocal” tariffs are not counted on the non-tariff tariffs or barriers of other countries imposed in the US, as Trump said. They are just based on deficits.
This assumes that deficits can only result from unfair trading practices, which is simply false. Sh.ba should have a balanced trade with countries that do not sell things we need, but need what we produce? Or the other way around? Trump administration policy is not simply wrong, it is dishonest: the minimum fee of 10 percent for all countries, regardless of tariffs or deficits, is according to non -mutual definition. This thing is just crazy. As former Treasury secretary Larry Summers puts it, it is about the economy what is the creation of biology.
Anyone with fake beliefs held tightly will have regular, unpleasant runs with reality. They change the course, just to drive immediately to the same ditch. Trump will not get what he wants from his tariff policy, so he will continue to change it, letting markets clash to catch. The tactics will zigzag as the basic strategic mistake remains.
Calculating Trump’s tariffs is just an example of unworthy chaos in which markets find themselves. The politics sketches did not telegraph in advance and came as a massive surprise. And the presentation on TV of Trump’s economic advisers both before and after the announcement seemed designed to alert investors. Neither the trade secretary Howard Lutnick and the Treasury Secretary Scott Bessent were previously informed or prepared to explain the next steps afterwards. Was this changing world -changing policy at a CRAM session the night before?
The full command of the entire performance was reflected by unusual actions in the markets after “ERITION Liberation”. American tariffs in the rest of the world, everything else being equal, must foster the value of the dollar (by dumping US imports for imports, they require demand for foreign currencies). A global economic shock should also promote the demand for the dollar – it has long been the safe shelter in the world. But the dollar has weakened. The simplest explanation is that investors see a new level of uncertainty in dollars and assets labeled in the dollar, and they are going out of the way.
Trump, one can argue, was just as Mercury in his first term as he is today, and the markets advanced. But the global context has changed dramatically since then. American shares and risk assets are generally more expensive than other history and markets than they were in 2017. Budget deficit and national debt are much higher, leaving the government with less fiscal space, if needed. The inflation gene is also outside the bottles, reducing the room for monetary relief from the central bank. And the US economy was already slowing down from the rhythms of volatile post-fandemic boom growth. China’s economy, once the growing engine in the world, is bold.
None of these facts are economic luck, but the situation is much more delicate and unpredictable than eight years ago. A steady hand would really help.
Markets, companies and economies are wonderful versatile things. Having time, they will make trade that require high tariffs. But the capricious style of the policymaking of the Trump administration has no stubborn. All that produces is a dead weight loss.
Robert.armstrong@ft.com
