President Trump’s imposition of huge tariffs on everything America imports on ‘Liberation Day’ at the start of this month has been widely condemned as one of the worst economic policy blunders of all time. There were fears the stock market would collapse. Investors are abandoning the United States for Europe. And the country is about to be plunged into stagflation. But something odd has happened. If you look at a stock market chart, basically nothing happened in April. Could it be that the markets have already decided that Trump’s tariffs don’t matter very much after all?
The stock market has got over their shock at the tariffs
As April comes to a close, it looks as if it will have been a ‘meh’ month for investors. The benchmarked S&P 500 looks set to end the month more or less where it started, falling by slightly under 1 per cent over the last four weeks. The tech-heavy Nasdaq index should, unless something dramatic happens later today, actually be in positive territory with a gain of close on 1 per cent. Anyone who had been away for a month and not checked their portfolio would not have seen much change.
Of course, stocks plunged after President Trump announced huge tariffs on the rest of the world on 2 April. And yet, despite all the predictions of the end of the post-war global trading system, and of a looming recession as the levies pushed up prices, equities have since clawed back almost all their losses. The tariffs have turned into a non-event.
One reason, of course, is that Trump has watered down his tariffs. At least in part because of the initial plunge in the stock market, the President was hustled into suspending the extra ‘reciprocal tariffs’ for 90 days while he worked out some ‘great deals’ with many of the US’s main trading partners. Even so, the global tariff of 10 per cent that he imposed is still in place.
And yet, the bigger explanation is surely this: the stock market has got over their shock at the tariffs. After all, imports only account for 15 per cent of US GDP, leaving the other 85 per cent largely unaffected. And a free market economy – and there are few freer than the US – is remarkably adaptable.
If the tariffs remain in place, some imports will be quickly replaced by domestic production, or the levy will be absorbed. In some cases, consumers will simply stop buying things that suddenly cost more and do something else with their money instead. As April closes, one point is clear: President Trump’s tariffs are not a huge deal – and the markets have already figured that out.
