Global stock markets dipped this week as President Trump announced a fresh wave of trade tariffs targeting Mexico and Canada, with Europe potentially next.
While most economists agree tariffs rarely achieve their stated economic goals, Trump tends to use them, or the threat of them, as leverage to get what he wants.
But it’s not always clear what Trump wants.
If these tariffs are implemented, we can expect retaliatory measures on US imports, triggering short-term market volatility.
Though these headlines can be unsettling, they follow a similar pattern to Trump’s first presidency⸺initial market turbulence followed by rebounds.
Initially, markets dismissed Trump's Tariffs 2.0 as him just posturing, but as implementation appears increasingly likely, global markets have begun to respond negatively.
Why is Trump reviving his trade tariff strategy?
At the core of Trump’s economic stance is the belief that America is getting an unfair deal from global trade.
The U.S. imports far more than it exports, leading to trade deficits with many key economies.
Trump’s solution⸺tariffs on foreign goods⸺aims to pressure trading partners into renegotiating deals that he perceives as more favourable to the U.S.
This approach is not just about trade; it is also a political tool.
Why I’m not overly worried
Trump sees the stock market as a direct measure of his success, frequently referencing rising markets during his first term as proof of his economic leadership.
If history repeats itself, he is likely to be highly sensitive to any market long-term declines triggered by his policies, making it probable that he will soften his stance if stocks react too negatively.
If tariffs are imposed, expect three key phases to unfold:
1. Initial shock and volatility: Markets dislike uncertainty, so expect an immediate reaction with potential declines in stocks heavily reliant on international trade⸺similar to 2018 when Trump’s China tariffs caused short-term pullbacks.
2. Retaliatory moves: Affected countries will likely impose countermeasures, further increasing market anxiety.
Certain sectors, particularly manufacturing, automotive, and technology, may experience dips as they navigate disrupted supply chains and higher costs.
3. Resolution and recovery: Trump ultimately wants a strong stock market so if declines persist and begin to affect his own wealth, history suggests he will adjust his stance.
During his first term, he often initiated tariffs only to later negotiate and soften their impact once leverage was achieved.
Markets rebounded as new deals were struck, often emerging stronger than before.
Looking back at the last cycle of U.S.-China trade tensions under Trump, the S&P 500 saw short-term volatility but ultimately ended higher by the time his presidency ended.
The biggest mistake investors can make is panic-selling during market downturns triggered by political manoeuvring.
Key takeaways
Short-term volatility is often just noise, markets react emotionally in the short run but tend to trend upward over time.
Retaliatory tariffs often lead to negotiations so it's helpful to think about Trump’s strategy as deal-making rather than long-term economic pain.
Once negotiations conclude, markets typically rally as uncertainty fades.
For long-term investors, reacting emotionally to these fluctuations can mean missing out on the inevitable recovery phase.
While renewed trade wars may seem daunting, remember that Trump ultimately wants a strong stock market.
His economic policies, despite initial turbulence, have historically supported growth in the long run.
The best strategy remains the simplest: stay diversified to cushion short-term volatility, keep a long-term perspective, and focus on fundamentals.
Trade policies shift, but strong companies endure.
By staying invested and resisting the urge to react emotionally, investors can ride out volatility and position themselves for long-term gains, just as those who weathered the last cycle did.
Markets reward patience. Stay the course.
Copy here introducing the client stories section and examples of testimonials
