From ‘Trump Bump’ to ‘Trump Slump’: Challenges Ahead with European Tariffs | Money News

Driven by hopes for a pro-Wall Street policy, a “Trump bump” led the S&P 500 to increase by 2.5% once the market settled.

The surge persisted following his inauguration, with the index reaching a peak of 6.3% higher by mid-February.

However, a “Trump slump” has since caused markets to plummet back to their original levels, with volatility escalating during the past week.

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The harsh realities of an economic agenda reliant on trade conflicts resulted in the S&P relinquishing all its post-election gains by Tuesday and declining further as tariffs introduced by executive order were rescinded at the president’s discretion.

It comes as no surprise that Trump resorted to tariffs.

They were a key promise of his campaign, characterized as the “most beautiful word” in his limited vocabulary. Yet, the aggressive and unpredictable implementation has left markets reeling.

On Tuesday, Trump imposed tariffs on the three largest trading partners of the U.S., two of which—Mexico and Canada—are bound by a free-trade agreement. Both nations faced 25% charges on goods exported to the U.S. (10% on the heavy crude from Canada that keeps U.S. gasoline prices in check), while tariffs on Chinese imports were raised to 20%.

Within 48 hours, the sanctions against Mexico and Canada were put on hold, raising questions among U.S. businesses, economists, and trade allies regarding whether the president’s bravado could be curtailed by market reactions.

The assertion that tariffs are expensive, disruptive, and divisive is an undeniable fact.

Confronted with significant price hikes, importers can either absorb the extra costs—thus cutting profit margins, investments, and eventual growth—or transfer those costs to consumers, leading to higher prices.

The ramifications have been widespread and immediate, creating confusion and disorder.

The U.S. automotive sector and its suppliers experienced three shifts in trading relations within just two days; executives from major retailers like Target cautioned about potential price increases; meanwhile, three northeastern states in the U.S. dealt with rising energy costs due to counter-tariffs from Ontario that threatened energy supplies.

Ambiguous motivations

What’s less clear is whether Trump’s motives are rooted in economics or politics.

Treasury Secretary Scott Bessent posited on Friday that they encompass both aspects.

In a CNBC interview, he stated that the tariffs aimed to tackle America’s fentanyl crisis, leveraging pressure on Canada and Mexico to combat cross-border trafficking, and pushing China to limit the flow of precursor chemicals.

However, Mr. Bessent also emphasized that the Trump plan would necessitate consumers “detoxing” from government support while waiting for the private sector to create jobs and wage advancements that surpass inflation.

This suggests a more profound resetting, where the declining value of the dollar, which has decreased throughout the week, becomes a secondary concern.

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For the president and some of his close advisors, tariffs represent ideological beliefs.

Their protectionist perspective asserts that inexpensive imported consumer products have undermined American manufacturing, with resulting trade deficits effectively acting as a tax on U.S. jobs.

Implementing tariffs follows the theory of reducing imports while promoting domestic manufacturing.

Nonetheless, this approach entails long-term corrections, with immediate consequences shouldered by American businesses and consumers and, by extension, a global economy still primarily influenced by the United States.

Further challenges are anticipated in the upcoming weeks, with the White House set to announce a global reciprocal tariff strategy, including the EU and UK, on April 2.

By that time, we may have clearer insight into whether Mr. Trump’s approval ratings and ego can endure a market decline, rising prices, and the ensuing criticisms.