Donald Trump is back at it, breathing life into his protectionist stance after signing a “big and beautiful bill” that kept taxes in check. Just last week, he decided to extend the 90-day pause on the so-called “liberation day” import duties until August 1. He sent out some pretty pointed letters and social media posts directed at key trading partners, which got them to jump on the chance for quick deals with his administration. Among other proposals, he suggested a 50% charge on copper and a whopping 200% on medicines. Interestingly, Wall Street didn’t seem too fazed— the S&P 500 keeps trading at around 25% above the lows following Trump’s initial tariff announcement back on April 2.
Now, tracking the tariff situation is pretty tricky, especially with the President’s hit-or-miss declarations. But if we look at policy moves leading up to July 13, Yale Budget Lab estimates suggest the average effective tariff rate in the U.S. has soared to its highest in over a century, possibly increasing to about eight times what it was last year. Economists generally think this could lead to higher prices over time, affecting profit margins and growth. Still, the stock market doesn’t seem to be getting the message; investors are displaying a strong appetite for risk with plenty of upbeat ratings.
There are a couple of main reasons for this optimism. For one, many investors are starting to believe that the President won’t follow through on his most aggressive tariff threats—it’s like a “Trump Always Chicken” scenario playing out. He’s shown a tendency to delay or scrap harmful economic policies. Secondly, the current tariffs, including a 10% universal charge, haven’t really made a dent in inflation or economic growth so far.
Both of these interpretations might seem overly rosy, though. It’s optimistic to assume Trump will back off from implementing tariffs on August 1. He recently pointed to the stock market’s response, suggesting his import duties were “very well received.”
Right now, America’s economic performance isn’t a good indicator of what’s coming next in terms of pricing. Stockpiling has helped keep custom pass-through costs from hitting consumer prices too hard. But with companies already pulling back their revenue forecasts amid uncertainty, it’s a bit concerning. Plus, Trump’s full customs plan hasn’t even been rolled out yet, and the administration is looking into potential sector-specific duties that could impact the tech industry—a key player for the health of the stock market. So, the upcoming second-quarter results from companies will definitely need a close examination.
Moreover, broader policy risks are on the rise. Recently, the White House accused “General” Jay Powell, the chairman of the Federal Reserve, of misunderstanding central bank renovations, throwing a new wrinkle into the regime’s already shaky relationship with central bank independence. Trump’s budget bill, which increases the deficit, raises further concerns about the fiscal sustainability in the U.S. The economy is showing signs of slowdown; the job market seems to be cooling off, and consumer spending has taken a hit.
Yet, Corporate America has shown resilience, managing to defy some of the most pessimistic forecasts. It’s possible Trump will find a way to shake things up again, but the rising uncertainty should certainly give investors pause. Coming down from these heights can be tough. The stock market is pretty concentrated, and household assets in stocks are at historic peaks. Right now, U.S. stocks seem priced as if only the best-case scenarios are on the table. With the unpredictable leadership in the White House, it feels more like blind faith than solid reasoning.
