Right now, there are probably one or two investors worried about what’s to come regarding the trade war. Of course, it’s sad for new investors who haven’t yet gotten into long-term thinking. The second phase of the trade war also shows something that I myself have reflected on.
“The European Union was formed to exploit the United States”
Those were Trump’s own words on social media after he threw in another tariff threat on Friday, this time aimed at EU. This time, however, it wasn’t about 10 or 25%, but rather a full 50% starting on June 1. So it was only a few days before everything would come into effect.
“Our discussions are going nowhere! That’s why I recommend 50 percent tariffs on the EU starting June 1. There will be no tariffs if the goods are manufactured in the US.”
In other words, Trump abolished the 90-day pause he had previously imposed, a pause that was then set to expire on July 8.
Not surprisingly, it took barely a weekend before Trump reversed course again and the tariff break was now extended to July 9. This after a conversation on Sunday with EU Commission President Ursula von der Leyen. Pretty shady I must say, but who is even surprised anymore? Not me at least.
What was interesting about the new customs policy was how the stock market reacted.
The first time Trump imposed the tariffs almost two months ago, the Stockholm Stock Exchange was initially down 3.4% , but that was only the beginning. This Friday, the Stockholm Stock Exchange was also down, but still only closed at -1.6% (OMXS30), even though the new tariffs against the EU were significantly more severe than before.
A pattern to observe
Trump aside, this is a pattern we have seen historically and it will probably not be the last time. When a new form of crisis comes, the market is completely unprepared and plunges headlong into uncertainty. Fear is total and investors just want to escape.
A clear example is Covid-19, where we had a week of brutally red numbers. When the stock market calmed down and a vaccine for this particular variant was shipped, about a year later we found out that a new variant had spread, which, as I recall, was supposed to be significantly more deadly than the one we were already living with. They called it “the second wave”. That particular news had a negative impact on the stock market, but far from what it had been like before. Why, one might wonder?
When a new type of crisis hits, the market thinks the world and the stock market are going to end – we will never recover. Some time later, we realize that it will not actually happen that way and then something completely new is needed to throw the market off balance. It doesn’t work with a new type of mutated virus or a new type of tariff threat.
There is a high risk (or chance) that Trump’s upcoming tariff threats will not affect the market as much as before. He has already played his cards and all he has really built is less confidence. So far, he has upset and not helped the US economy.
As for me, Trump is more than welcome to continue his show for a while longer. He is more than welcome to present these around the 25th of each month when his paycheck comes in, which is exactly what he did this Friday.
They say we don’t know when the next stock market crash will happen. All we know is that the next one won’t be like the previous ones . Only now do I understand why that is actually the case.
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