The fair poster board of a now ignorant primary school that marched into the White House Rose Garden on “liberation day” prompted a deep and fast stock market decline that didn’t stop until announcing a 90-day suspension on the same mutual tariffs listed on the board.
Why did the market suddenly fall?
The stock market is the current value of future expectations. Positive and negative surprises can cause a big move.
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These tariffs were a negative surprise. The average tariff rate was about 2% of imports in April. The market was expecting about 10%.
The news brings the average to about 20%, and if the fees come into effect as stated on April 2, they would bring in $620 billion a year.
The market considers tariffs as taxes
Regardless of how you feel about customs duties, the market sees them as taxes. If companies see their margins being squeezed by costs, this appears just like a rise in corporate tax rates, and stock prices fall.
If a higher cost is passed to consumers, this appears just like an increase in sales tax, which can slow demand, and the entire economy is shown as a whole.
For President Donald Trump, Commerce Secretary of Commerce Howard Lutnic and trade adviser Peter Navarro, the tariffs are equal. In the market, tariffs are bad.
Luckily, the market has regained all these losses since April 2nd due to the suspension of tariffs, but we are not yet in the woods. Below are some important upcoming dates and why they are important.
July 9th
A 90-day suspension at the higher “mutual” tariff rates in most countries (except China) expires.
Remember, in April, the US and China were raising import rates to unsustainable levels? On April 9, the US suspended most of its 90-day “mutual tariffs,” but excluded China from the suspension.
In theory, these countries are currently in negotiations with the US, but that’s a lot of transactions that take place within a month.
July 14th
I attacked you. You attacked me. The EU hit us with retaliatory tariffs after the release date. In response to the April 9 suspension, they suspended customs duties on our products. The suspension expires on July 14th.
We hope that neither of these duties will come true. In addition to the market fallout, Europeans will drink scotch instead of bourbon. You’ll drink Cabernet instead of Bordeaux. I think that part could get worse…
July 29th
The same thing was said about the G7, so it’s understandable that you are skeptical about the G20 meeting at the end of July.
But that’s exactly what happened in 2018 and 2019 when the US announced trade tracts with China during the G20 event.
July 31st
On May 28, the US Court of International Trade (yes, this is real) ruled that the President has surpassed his statutory authority under the International Emergency Economic Force Act (IEEPA) by imposing peacetime tariffs that are not bound by a particular national emergency.
The federal court of appeals subsequently issued a stay that freed lower court decisions.
In English, tariffs are still in effect until oral discussion is heard on July 31st (except for the suspension).
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When the administration loses this fight, they escalate through appeals to the Supreme Court. Simply put, this can be long.
Even if they lose in the Supreme Court, they will probably find other ways to impose tariffs, but they have to get involved in Congress.
Companies dislike uncertainty. It causes employment freezes or even worse, layoffs. Suspend your investment. And they are bad for the market.
August 10th
Trade negotiations between the US and China are probably the most complicated. They go beyond the need to procure cheap electronics and strollers into national security considerations.
China needs AI chips. Many things require rare earths to create these AI chips. Essentially, we need each other, but neither of us want others to give or give the advantage.
We are in a 90-day trade ceasefire that expires on August 10th. Negotiations are ongoing and could close at any time now.
All of these things bring about uncertainty and you know that it can make an investment or trust your investment. Perhaps the worst thing you can do is make your feelings about tariffs, government, or Bordeaux affecting your strategy.
The market is essentially priced in the best case scenario of tariffs. I hope the market is right.
But one reason we prefer the dynamic asset allocation we use is that it is black and white. When the market drops at X, it reduces exposure due to Y. Increases with X increases exposure due to Y.
Trust your financial plan.
If you don’t have a financial plan, you can use the free version of the software you use.
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This article presents and presents the opinions of contributors, not Kiplinger’s editorial staff. Advisor records can be viewed in SEC or FINRA.
