How Trump’s two tariff threats shatter three bullish assumptions about trade policy
Futures are sharply lower after the president said Apple and the EU could face higher tariffs soon.
Two trade threats Truth’d by President Trump are tanking stocks this morning:
1) If Apple doesn’t make iPhones in the US, it’s facing 25% tariffs.
2) The European Union negotiations are going so poorly that the bloc’s imports should be slapped with a 50% tariff starting in June.
Three emergent bullish assumptions about the Trump administration’s trade policy and the implications for financial markets that have developed over the past five weeks are getting shattered (or at the very least, revisited) in light of these micro missives.
Among them:
Challenged assumption #1: The direction of travel for tariffs is lower.
The “tariff dial” had been moving pretty steadily lower for more than a month now, between delays to the imposition of reciprocal tariffs and some deals that keep levies on ice, or much lower, than previously feared. That dial isn’t quite getting cranked up to 11 “Spinal Tap”-style this morning, but this certainly has the feel of a trend reversal moment in tariff policy.
Challenged assumption #2: When it comes to tariffs, companies that are important to the stock market will be treated with kid gloves as much as possible.
See: the mid-April exemption for imported smartphones that let Apple bulls breath a deep sigh of relief.
See also: semiconductors have been excluded from tariffs so far, pending an investigation. In the meantime, regulatory tweaks have sufficiently reopened some export markets to the point that Nvidia and other AI-linked companies can book deals worth billions with Saudi Arabia.
Challenged assumption #3: We know the new range of possibilities when it comes to tariffs.
Some analysts expected that 10% and 30% would mark a ceiling and floor for tariffs, corresponding to the levies the US has on imports from the UK and China and the relative trade balance on goods those countries have with America — tiny surplus versus big deficit, respectively. Alas, attempts to ascribe a very cogent framework to the administration that tariff’d penguins now look like a bit of an exercise in futility after a threat that tariffs on Europe are going up to 50% in a little over a week.
These assumptions, and the building evidence supporting them up until this morning, have played a role in the market’s swift recovery since April 8. As the bull case frays, at least for today, we’re back to some uncomfortable questions like, “How much tariff risk is embedded in the market with the S&P 500 priced for double-digit earnings growth this year and multiples well above where they were on April 2?”
And when those questions don’t have quick, satisfactory answers, well, this happens.
