In the short term, everyone loses in a trade war
Roughly six weeks from President Donald Trump’s inauguration was when the presidential honeymoon period seemed to end.
Trump has stayed true to his campaign promise to levy tariffs on foreign goods imported from our country’s largest trading partners: Mexico, Canada and China. And while he has enough political support for these policies, the financial feedback loop has been anything but positive.
With tariff uncertainty in the spotlight, the U.S. stock market suffered its worst day of the year March 10. The S&P 500 lost 2.7%, and the NASDAQ fell 4%. The strong selloff in stocks pushed the S&P to its first 10% correction since 2022. The NASDAQ, as of Tuesday evening, had already fallen 14% from its peak.
No single issue ever drives market movements, but Trump’s economic policy has taken center stage. The argument for tariffs is they can balance trade deficits, make American products more attractive (relatively speaking) and bolster U.S. industries.
The problem is in the short term, everyone loses in a trade war. Tariffs against foreign countries are inevitably met with retaliatory tariffs on American goods. That means more import taxes for consumers and companies on both sides. It’s a political staring contest in which prices keep going up until somebody blinks.
Trump’s political identity is rooted in “America First,” so it’s ironic U.S. stocks have sold off significantly and international stocks have soared. Year-to-date through March 13, the S&P 500 declined 6%. During the same time, the MSCI EAFE index (think: Non-U.S. Developed equities) has gained nearly 9%.
Europe makes up more than 60% of the international benchmark, and it’s interesting to see European stocks perform so well even though Trump scheduled 25% tariffs on aluminum and steel imports from European Union countries to take effect Wednesday.
It’s not just economic policies that are influencing global stock prices. Foreign policy is having an effect as well. Trump and his administration have indicated they might reconsider America’s commitments to NATO (the North Atlantic Treaty Organization).
