Despite Highest Tariffs Since 1930s, Stocks Hold Steady Amid Trump’s Push on Trade Wars

The ongoing trade tensions under President Donald Trump’s administration have been a subject of intense scrutiny on Wall Street. The term TACO (Trump Always Chickens Out) was coined earlier this year to describe the president’s inconsistent stance on tariffs, with his propensity to impose heavy import taxes only to retreat when market volatility ensued.

However, Trump’s latest move has challenged this perception. On Thursday, a fresh round of tariffs took effect, raising the average tax on US imports to levels not seen since the 1930s. Contrary to expectations, the markets have thus far shown resilience, with both the Nasdaq and S&P 500 posting strong weekly closures and record highs in some cases.

This shift is surprising, given that the president’s tariffs in early April had triggered a global stock market slump. While it’s premature to declare victory, economists are impressed by Trump’s ability to implement significant tariffs without causing a major market shock.

Ethan Harris, former head of global economics at Bank of America, commented that the president has managed to implement substantial tariffs without provoking a significant market reaction. He added that this could be seen as an achievement if one supports tariffs.

Investors have been adapting to this dynamic, which Harris describes as “Trump Always Tries Again.” The latest round of tariffs maintains an average rate similar to the initial attempt in April, according to the Budget Lab at Yale.

Despite stocks hovering near record highs, concerns about the long-term impact on the economy persist. Kurt Reiman, head of fixed income at UBS, notes that carveouts and exemptions have helped mitigate the immediate impact of tariffs, easing investor concerns.

Exemptions for companies like Apple have been instrumental in maintaining market momentum. For instance, Apple is exempt from certain tariffs due to its commitment to domestic production, leading to a 13% surge in its stock price last week, marking its best weekly performance since 2020.

However, the tariff wall built by the administration still contains numerous holes due to product exemptions, carveouts, and delayed implementation dates, according to Reiman. This complexity has drawn attention away from tariffs, with investors focusing more on positive developments such as the AI boom in the United States.

Strong earnings reports from tech companies like Nvidia and Meta, coupled with a lack of significant retaliation from trading partners, have further buoyed the market. However, investors are closely monitoring inflation and labor market data in the coming months to gauge the true impact of tariffs on the economy.

Arun Sai, senior multi-asset strategist at Pictet Asset Management, believes that investors are taking a leap of faith by assuming the resilience of the US economy and minimizing the potential negative effects of tariffs. He warns that markets may be overly complacent and will be closely watching upcoming inflation reports for any signs of price increases due to tariffs.

In conclusion, while President Trump’s latest move on tariffs has been met with initial market resilience, the long-term impact remains uncertain. Investors are maintaining faith in a “Trump put,” or the notion that the president will refine his approach if markets plummet, but the true test lies ahead as data on inflation and labor markets become available.