Trump launches trade war, why isn't Wall Street worried?

Investors seem to think that Trump’s tariffs are more bark than bite, but the US stock market is not immune to further impacts from tariffs or other policy proposals. Trump may be emboldened to push for extreme measures because of the relatively calm market reaction.

The global trade war doesn’t seem to have scared Wall Street.

On Thursday, February 13, local time, U.S. President Trump announced that he would explore how to impose reciprocal tariffs on U.S. trading partners, which is another major factor that could lead to the gradual escalation of the global trade war he initiated.

However, the S&P 500 index closed up 1% at 6110 points, close to the historical high of 6118.71 points set on January 23. The Dow Jones Industrial Average rose 0.8% and the Nasdaq Composite Index rose 1.5%.

Investment adviser Villere & Co. partner and portfolio manager George Young(George Young) commented that investors seem to think of tariffs as ‘much ado about nothing.’

The stock market rose because the executive order did not immediately lead to tariffs as investors and foreign leaders feared, and previous tariff-related actions were considered less severe than initially proposed.

Earlier this week, Trump announced a 25% tariff on all steel and aluminum imports into the United States. Earlier in February, Trump announced 25 percent tariffs on Canadian and Mexican goods and 10 percent on Chinese goods. Trump quickly hit the “pause button” after Canadian and Mexican leaders pledged to take steps to strengthen border enforcement and combat drug trafficking.

However, Yang believes that the rise in the stock market does not mean that the market is immune to further impacts from tariff measures or other policy proposals.

“We know it’s become a new normal, and the stock market isn’t getting rid of tariffs, it’s absorbing it little by little, while waiting to see what kind of policies will be implemented,” he said. ”

Indeed, although the stock market bulls are jubilant, the tariff issue is far from resolved. A senior White House official told reporters that reciprocal tariffs may take effect in weeks or months, and the U.S. government will first review the countries with the largest trade surplus with the U.S.

(Capital Economics)Chief North American Economist Paul Ashworth(pointed out that the Trump administration seems to have abandoned the call for a 10% to 20% general tariff on imported goods, but the broad criteria officials have set for assessing new tariffs could lead to a bigger increase in average tariffs and U.S. consumer prices.

Loomis, Sayles & Company portfolio manager Matt Eagan)believes that the threat of tariffs is one of the “many paradoxes” embedded in Trump’s agenda, which are difficult to unravel and may lead to occasional violent market fluctuations.

In the research report, Igen wrote, "Extending tax cuts may stimulate consumption, but it may also lead to a worsening fiscal deficit; immigration control may tighten the labor market, but it may also lead to wage increases; tariffs may trigger a trade war, while suppressing demand and raising prices. We believe that investors should focus on Trump’s goals and the factors that constrain him through the noise. His actions may be “sound and fury, signifying nothing,” but we advise investors not to become complacent.

Christopher Smart, Managing Partner of the geopolitical risk advisory firm Arbroath Group, warns that investor complacency could become part of a dangerous feedback loop.

Smart said, “It’s hard to know what the final implemented tariff policy will be, or how high the tax rate will be, but it’s certain that many tariff policies will take effect, and at the same time, because investors’ reactions have been relatively calm so far, Trump may be more bold in trying extreme measures.”