Trump Tariffs Begin – The New Normal

The month-long halt is over. And the markets failed to prepare.

Wall Street was ostensibly blindsided as the new trading week began on March 4, forcing investors into full-blown panic mode. Despite President Donald Trump promising tariffs, traders shrugged off the new administration’s threats and went about their business. Well, the latest round of Trump tariffs – 25% levies on all Canadian and Mexican goods and an extra 10% import duty on Chinese products – went into effect that day, and the New York Stock Exchange was shocked – shocked! But should any fund manager continue to be surprised by the new administration, particularly on trade?

Trump Tariffs – Round What?

Is anyone keeping track of the Trump tariffs? For those who have lost count of what levies have been proposed and what have been enacted, two (maybe three?) types of tariffs have gone into effect. The first was the Feb. 4 10% tax on Chinese goods entering the United States. The second was an additional 10% duty on products coming from the world’s second-largest economy, effectively raising the tariff rate to 20%. The final one is the universal 25% tariffs on two of the largest US trading partners, which tanked the leading stock indexes and caused market watchers to reconsider their annual economic projections.

President Trump justified following through on his Canada-Mexico levies by pointing to their lack of action on fentanyl. While administration officials commended the North American neighbors for their job in curbing the flow of illegal immigrants, the president has not been satisfied with how they have managed the movement into the US of this lethal drug. He told reporters there was “no room left” to reverse course and informed companies they could avoid these trade measures.

“They’re going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs,” Trump said at a March 3 White House event.

The Great White North is responding with retaliatory tariffs. Ontario Premier Doug Ford wants to take it one step closer: cut off electricity to several American states, including Michigan, Minnesota, and New York. And the newly reelected premier wants to do so “with a smile on my face.” This should be riveting popcorn entertainment for political observers and financial agony for the impacted businesses and workers in all three countries.

While the economic fallout will be analyzed with immense vigor, the immediate reaction on The Street was telling. To quote former Defense Secretary Donald Rumsfeld: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know.”

Oh, There Will Be Blood

The March 3 timeline of events was a sight to behold. The leading benchmark averages were holding steady, with the blue-chip Dow Jones Industrial Average rising about 300 points in the early trading session. Within hours, the index suffered a more than 1,000-point swing, ending the day down nearly 700 points. The S&P 500 wiped out $1.5 trillion in market cap in five hours. Cryptocurrency markets rode the wave of red ink, eliminating $300 billion in value and shrugging off the administration’s US Crypto Reserve initiative.

So, what were the chief headlines throughout the session?

The day started with reports that President Trump would make a couple of significant economic announcements. One of these turned out to be that Taiwan Semiconductor Manufacturing Company (TSMC) is planning to invest $100 billion in the US economy. Yet, investors apparently turned bearish when Trump began speaking shortly before 3 p.m. EST. Why? The Trump tariffs.

A reporter asked the president: “On the tariffs, is there any room left for Canada and Mexico to make a deal before midnight?” Trump responded: “No room left for Mexico or for Canada. No. The tariffs, you know, they’re all set. They go into effect tomorrow.” It got worse. Minutes after the news conference, the White House published an executive order doubling tariffs on China. Remember, during Trump’s first term, it took roughly two years before levies were raised to 20%.

February began with fears of an all-out continental trade war. Cooler heads eventually prevailed, and the three parties agreed to a 30-day pause. Did traders think that the White House would forget about the month-long suspension? The trading day’s movement suggests so.

The New Normal

This is the new normal that analysts, strategists, institutional investors, and armchair traders need to accept. Trump 1.0 featured a lot of waffling and wavering, prompting conclusions that the president was cracking jokes and seeking public feedback. Trump 2.0, so far in its infancy, could be the real deal, meaning that when the president spouts something off the top of his head, its trajectory might be an official document landing on the Resolute Desk waiting for a signature.

The Trump tariffs, from the reciprocal plan to targeting steel and aluminum, are set to become a reality. The discussion will then have to be whether this will assist in ushering in President Trump’s vision of a new golden age of prosperity or direct economic headwinds in the economy’s path.