Why the Stock Market Doesn’t like Tariffs

In an effort to cut the trade gap and negotiate a more favorable trade agreement with China, President Trump recently announced tariffs of
25 percent on steel and 10 percent on aluminum. This means that the cost of purchasing these items from abroad will increase.

This will ostensibly help American steel and aluminum companies become more profitable because their competition will need to raise their prices to cover the cost of the tariff. However, this means that all American companies that need to buy steel and aluminum for their products will have to pay more for those products. Therefore, those companies will make less profits and will need to raise prices. This could result in a loss of sales and potentially cause a loss of jobs.

Additionally, foreign countries tend to retaliate by imposing tariffs on U.S. exports. For instance, China has indicated that it is now considering imposing tariffs on U.S. agricultural exports, wine and pork products. This would result in a loss of sales and profits to these U.S. industries and could reduce jobs in those industries as well.

Most economists agree that tariffs are bad for the economy.

In a letter to the White House signed by leaders of the U.S. Chamber of Commerce, the National Retail Federation and other groups, President Trump was urged to consider that “the imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods and services exports; and raising costs for businesses and consumers.”*

We don’t yet know how this will end or if the tariffs will become permanent and lead to a full-scale trade war. However, the stock market dislikes uncertainty and until this is favorably resolved, expect the possibility of continued volatility.

*NPR