A Hidden Danger Lurks Within President Donald Trump's Tariffs, and It Can Spell Big Trouble for Stocks
Key Takeaways
The devil is in the details of President Trump's tariff and trade policy.
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7 min read
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investment
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July 27, 2025
03:06 AM
The Motley Fool
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The analysis indicates that Though volatility is the price of admission to one of the greatest wealth creators on the planet, the stock market swings that investors have endured in 2025 have been extraordinary
In early April, the iconic S&P 500 (^GSPC 0
Moreover, 40%) lost 10. 5% of its value over a two-day period, which marked its fifth-steepest two-day percentage drop in 75 years
Moreover, This historic volatility also thrust the growth-focused Nasdaq Composite (^IXIC 0. 24%) into a bear market for the first time since 2022
The data indicates that analysis suggests that was ed a week later by the S&P 500, Nasdaq Composite, and ageless Dow Jones Industrial Average (^DJI 0. 47%) logging their largest single-session point gains since their respective inceptions (this bears monitoring), in this volatile climate
For only the sixth time since 1950, the S&P 500 has registered a 25% or greater gain in a three-month stretch
Though an abundance of news has whipsawed Wall Street during this timeline, including quarterly operating results, a U
Debt downgrade, and geopolitical tensions in the Middle East, the one common link fueling this rollercoaster ride is President Donald Trump's tariff and trade policy
However, President Trump dering remarks
Image source: Official White House Photo by Shealah Craighead, courtesy of the National s (something worth watching)
Despite the president's recent announcement of trade deals with Japan and the Philippines, a hidden danger lurking within Trump's tariff and trade policy threatens to sink the stock market (noteworthy indeed)
Donald Trump's tariff announcement and pause roiled and reinvigorated Wall Street The wild ride for stocks truly began ing the close of trading on April 2
This day, commonly referred to as "Liberation Day" by President Trump, is when he initially unveiled the tariff and trade policy that roiled, in this volatile climate
Additionally, At the same time, He introduced a base global tariff rate of 10% and set higher "recical tariffs" on dozens of countries that have historically run unfavorable trade imbalances with America
The S&P 500's aforementioned two-day swoon occurred on April 3 and April 4
On the other hand, Moreover, On April 9, with the stock market enduring a mini-crash, Donald Trump placed a 90-day pause on recical tariffs for all countries China
This 90-day pause is what ignited the strongest single-day point gains in the history of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, given current economic conditions
Ing an extension via executive order from President Trump on July 7, this 90-day pause on recical tariffs will end on Aug, in this volatile climate
Aforementioned trade deals with Japan and the Philippines, as well as gress on a possible trade resolution with the European Union, have investors hopeful that this near-term uncertainty can be placed firmly in the back seat sooner rather than later (which is quite significant)
But a deeper historical dive into Donald Trump's tariff policies reveals a hidden danger that threatens the very fiber of corporate fits, as well as the health of the U
Image source: Getty Images
President Trump's tariffs come with a dangerous flaw In December, four New York Federal Reserve economists working for Liberty Street Economics published a study ("Do Import Tariffs tect U, in today's market environment
On the other hand, Moreover, ") that examined the various impacts of Trump's China tariffs in 2018-2019 for the U (which is quite significant)
Economy and stock market
In contrast, While some of their findings were expected, one in particular stands out (fascinating analysis)
For example, one of the least-surprising conclusions was that public companies exposed to Trump's China import tariffs in 2018-2019 performed notably worse on tariff announcement days than es with no exposure
In contrast, Wall Street tends to value transparency and predictability above all else, and the introduction of tariffs removed some of these aspects, in today's financial world
Additionally, the companies that performed poorly during U, amid market uncertainty
Tariff events had worse future real outcomes, according to the four New York Fed economists (this bears monitoring)
Moreover, On average, labor ductivity, employment, sales, and fits all declined from 2019 to 2021 for es with exposure to Trump's China import tariffs
In other words, the implementation of tariffs turned into a sustained headwind for a broad swath of public companies, given the current landscape
But the real devil is in the details -- or in this instance, the lack thereof
However, Liberty Street Economics notes that President Trump's tariff policy in 2018-2019 lacked differentiation between output and input tariffs, and this could be a blem, once again, in today's market environment
An output tariff is a duty assigned to a duct being imported into the U
In comparison, an input tariff is a duty placed on a good used to complete the manufacture of a duct domestically
In contrast, Input tariffs can make domestic duction pricier and/or less competitive with goods being imported from overseas
This can result in weaker sales, margins, and fits for U, given current economic conditions
Es, which is precisely what the four economists observed from 2019 to 2021 (something worth watching)
While most investors are focused on headline trade deals, they're overlooking potentially crippling input tariffs on steel, aluminum, and copper (copper tariffs go into effect on Aug (this bears monitoring). 1), among other goods
The evidence shows se tariffs run the risk of reigniting the prevailing rate of inflation, weakening corporate earnings, and ultimately sending stocks notably lower
Time and perspective can trump Trump's tariffs Although it's possible that Liberation Day 2 (quite telling) (this bears monitoring). 0 could spark a new wave of heightened volatility on Wall Street, and input tariffs can weigh on margins and corporate America's fits, there's a big difference between what might happen over the next year or three and where the stock market will be 10 to 20 years from now (remarkable data)
Based solely on historical precedent, vis-à-vis the Liberty Street Economics study, stocks with exposure to Trump's tariff and trade policy (i, in today's market environment
Additionally, , most public companies) can expect some challenges during his second term in the White House
Moreover, But this doesn't mean stocks are off-limits for long-term-minded investors capable of taking a step back and looking at the big picture
Market analysis shows 's official (something worth watching)
A new bull market is confirmed
On the other hand, The S&P 500 is now up 20% from its 10/12/22 closing low
The prior bear market saw the index fall 25, in today's market environment. 4% over 282 days (an important development)
Read more at https://t
Co/H4p1RcpfIn, in light of current trends
Com/tnRz1wdonp -- Bespoke (@bespokeinvest) June 8, 2023 A little over two years ago, in June 2023, the analysts at Bespoke Investment Group published a data set that calculated the calendar-day length of every S&P 500 bull and bear market since the beginning of the Great Depression in September 1929 (noteworthy indeed)
Moreover, These calculations revealed a night-and-day difference between periods of optimism and pessimism on Wall Street (something worth watching)
The analysis reveals average S&P 500 bear market has endured for 286 calendar days, or roughly 9
On the other hand, 5 months, over a nearly 94-year period (this bears monitoring)
Nevertheless, On the other side of the coin, the typical bull market stuck around for 1,011 calendar days, or three months shy of three years
Historically, the stock market spends a disportionate amount of time growing versus contracting (noteworthy indeed)
Additionally, 14 out of 27 bull, including the current bull market when extrapolated to present day, have lasted longer than the lengthiest S&P 500 bear market (630 calendar days), which spanned almost 94 years (quite telling)
While there's no immediate cure for the uncertainty that Trump's tariff and trade policy brings to the U
Economy and stocks in the short run, time and perspective have demonstrated that they can trump Trump's tariffs over the long term.
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