The stock market has shown a complex relationship with President Donald Trump’s tariffs. In April, when Trump announced plans for the highest U.S. import taxes in over a century, Wall Street reacted negatively. Stocks plummeted nearly 12 percent within a week, and the yield on the 30-year Treasury bond experienced its most significant spike since 1982. This turbulence prompted the president to pause the tariffs, allowing a 90-day window for negotiations. The subsequent weeks were marked by a whirlwind of tariff threats and withdrawals from the White House.
Despite the initial turmoil, the S&P 500 index has rebounded impressively, rising by an astonishing 26 percent since its early April lows. Trump has hailed this market recovery as a validation of his bold approach to reshaping global trade. However, experts warn that both Wall Street and the president may be pushing their luck. Douglas Rediker, chairman of International Capital Strategies, expressed concerns about the increasing aggressiveness of Trump's tariff positions, suggesting a growing sense of invincibility in the president's approach.
Investors seem to be operating under the assumption that Trump will retreat from his more extreme tariff plans, leading them to continue bidding up stock prices. However, the president appears to interpret the steady rise in stock values as a mandate to escalate his trade threats. This dynamic resembles his infamous 2016 statement about being able to act without consequence, revealing the high stakes involved in his economic policies.
Adding to Trump's confidence, he successfully pushed the 'One Big Beautiful Bill Act' through Congress earlier this month, which included his tax and spending priorities. Shortly thereafter, Trump escalated the trade war by notifying nearly two dozen nations about new import taxes on their goods. These actions included a staggering 35 percent tariff on imports from Canada—an ally expecting to finalize a trade deal—and a hefty 50 percent tariff on Brazil, a country that has historically imported more from the U.S. than it exports.
In an interview with NBC News, Trump revealed intentions to increase the baseline tariff from the current 10 percent to as high as 20 percent. "I think the tariffs have been very well received," he stated, referencing the recent highs in the stock market. On Truth Social, he boasted about record highs for tech and industrial stocks, alongside a notable 47 percent rise in NVIDIA shares since the implementation of his tariffs.
Despite Trump's assertions, the S&P 500 index showed little reaction to his announcements, closing down 0.3 percent and trading flat for the week. This resilience indicates that investors are beginning to disregard the uncertainty surrounding Trump's long-term trade objectives. Although the president claims that tariffs are intended to bolster domestic manufacturing, the specifics of these policies remain unclear, with legal challenges to his tariff authority ongoing.
The tumultuous period began on April 2 with the announcement of steep tariffs aimed at achieving "reciprocity" in U.S. trade relations. Financial markets reacted sharply, with both stock and bond prices falling—a rare occurrence. Following the backlash, Trump announced a delay in implementing the tariffs, citing turbulence in the bond market as the reason for his retreat. The yield on the 10-year Treasury surged by half a percentage point in just days, indicating investor unease.
Tariffs on China, which were not part of the delay, soared to an astonishing 145 percent, and the administration initially excluded many electronic products from new levies. In response to slow negotiations with the European Union, Trump threatened a 50 percent tax on EU products, only to backtrack shortly thereafter. His administration has seen a dizzying array of tariff proposals, with some, like a 200 percent tax on imported pharmaceuticals, deemed unlikely to materialize according to analysts.
Despite ongoing tariff discussions, the economy has shown resilience. Recent data indicates that consumer prices increased at an annual rate of 2.4 percent as of May, a decrease from 3 percent when Trump took office. Employers added 147,000 jobs last month, suggesting ongoing economic expansion. However, economists warn that the muted economic impact of tariffs may not last, with projections indicating that inflation could rise by a full percentage point due to these policies.
As Trump continues to announce new tariffs, including a 50 percent tariff on copper set to take effect in August, the risk remains that he might feel emboldened to implement more extreme measures. Ed Yardeni, president of Yardeni Research, suggested that if the market perceives tariff turmoil as damaging the economy, Trump could be forced to reconsider his stance.
The intricate relationship between Trump's tariff policies and Wall Street's response continues to evolve. While some market strategists remain optimistic about a bull market, the volatility surrounding trade policy is expected to lessen as the administration negotiates with U.S. trading partners. As uncertainty looms over the specifics of upcoming tariffs, investors are advised to remain cautious, recognizing that the dance between the market and Trump's policy decisions is far from over.
