Stocks started April by trading relatively sideways to slightly higher. But immediately following President Trump’s reciprocal tariff announcement in the White House Rose Garden on Wednesday afternoon, stocks spiraled lower.
The S&P 500 dropped 4.8%, the Dow declined 4%, and the NASDAQ plunged 6% in trading on Thursday. All three of the major indices closed Thursday below the March 13 closing low, signaling that the market’s downtrend has resumed. And on Friday morning, stocks dropped sharply again after news broke that China announced retaliatory tariffs of 34% on all goods from the U.S. What’s more, some reports indicate that retaliatory tariffs from Europe will come on Monday.
Clearly, the uncertainty that’s plagued the stock market this year did not dissipate with Trump’s so-called “Liberation Day,” as we had hoped. Rather, folks are even more concerned now about an escalating trade war, rising inflation and slowing global economic growth.
But, the Trump administration has a few primary goals with the reciprocal tariffs…
The reciprocal tariffs are, first and foremost, a negotiating tactic.
If you looked at any of the tables that laid out the U.S. reciprocal tariffs alongside the tariffs that other countries and nations have on the U.S., then the trade imbalances were crystal clear. And in some cases, the new reciprocal tariffs are still not level with other countries’ levies on the U.S.
So, President Trump shocked everyone when he introduced reciprocal tariffs across the board. No trading partner was spared. At least 10% tariffs were imposed on everyone.
Those countries with persistent trade imbalances were slapped with even bigger tariffs. As an example, China was hit with a 34% tariff (compared to its 67% tariff on the U.S.), and Vietnam was hit with a 46% tariff (compared to its 90% tariff on the U.S.).
In the wake of the reciprocal tariff announcement on Wednesday, there’s been a lot of backlash from countries around the world. But interestingly, most are coming to the negotiating table rather than retaliating with more tariffs. This includes the European Union (EU), the U.K., Switzerland and Singapore.
So, new trade talks will ensue, and new trade deals are anticipated.
On Thursday, April 3, the 25% tariffs on U.S. auto imports were also officially implemented – and auto manufacturers have started to respond. But the response has been along the lines of what President Trump was hoping for… more onshoring.
Back in late March, Hyundai revealed its plans to invest about $21 billion in U.S. onshoring, including a $5.8 billion steel plant. This week, Mercedes-Benz noted that it will consider manufacturing more vehicles in the U.S., and Volvo plans to boost the number of cars it makes in the U.S.
In the meantime, $1.2 trillion in technology onshoring has already been announced. Apple Inc. (AAPL) and NVIDIA Corporation (NVDA) announced $500 billion and $100 billion, respectively, in onshoring projects in the U.S. and if more technology companies, as well as pharmaceutical and vehicle companies, onshore operations to the U.S., there could be several trillion in onshoring!
More onshoring clearly equals more revenue for the U.S.
White House aide Peter Navarro recently stated that the reciprocal tariffs will boost the U.S.’s revenue by $6 trillion in the next 10 years. He noted that the figure doesn’t include the tariffs on vehicles. Tariffs on vehicles are anticipated to generate about $100 billion each year.
And if more corporations onshore and investment pours into the U.S., that will boost revenue, and then income taxes could be lowered. So, Commerce Secretary Howard Lutnick’s plan to have tariffs potentially replace income taxes will be tested.
We now have a lot more clarity on the Trump administration’s tariff plans and what it hopes to accomplish with it. This clarity, though, did little to quell Wall Street’s concerns.
But when the dust settles, I expect the stock market to reverse.
The fact is that the U.S. remains an oasis. Yes, the U.S. dollar weakened and Treasury yields declined in the wake of the reciprocal tariff announcement. And yes, the U.S. will likely post negative Gross Domestic Product (GDP) growth in the first quarter due to trade imbalances and an increase in gold inventory.
However, folks will pour back into the U.S. because we have higher rates, and our central bank is cutting key interest rates at a much slower pace than its global counterparts. That will help the U.S. dollar strengthen versus its peers – and a strong U.S. dollar should help suppress any inflation ignited by the tariffs.
I should also add that the U.S. economy remains stronger than most. While GDP likely contracted in the first quarter, the U.S. does not have all the signals of a recession.
So, again, I anticipate a huge reversal in the stock market and encourage you to tune out the noise and focus on the facts.
