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President Trump’s Tariff: Future Outlook & Market Volatility

March 20, 2018

 

Last week, President Donald Trump announced a plan to set imposed tariffs on steel and aluminum imports further adding a layer of uncertainty on the future outlook of the markets. Tariffs of 25% on steel imports and 10% on aluminum imports will result in a price increase for multiple consumers and slow down growth for many businesses globally. This news could also play a major impact on foreign countries as they might also impose a similar tariff on U.S. exports.  

 

President Trump’s announcement resulted in a decline in the stock market and backlash from global leaders who might have to face the burden on billions of dollars’ worth of U.S. imports. Shares of industrial companies and automakers face heavy headwinds with a sharp decline in share price going forward. The U.S. dollar continued to pull-back against the yen and euro as rumors about a potential trade war created a volatile environment according to Brad Sorensen, managing director of the Schwab Center for Financial Research.

 

“The market doesn’t like uncertainty. We don’t know if the tariffs will be targeted or widespread, what the foreign reaction will be, or whether this is an opening shot in a battle for tighter trade restrictions or a standalone action designed to send a message in ongoing trade negotiations.”

 

The biggest question has still been left unanswered because there is no concrete direction the market is headed due to the Cboe Volatility Index (VIX), a measure of market volatility expectations. With the recent news on tariffs and the Fed’s potential short-term rate hikes, the VIX has sparked to a level around 19.59 further implying a 30-point swing in either direction for the S&P 500.

 

As potential tariffs could impact the job market and change investment strategies going forward; only time will tell if tensions rise between the United States and its foreign trade partners.

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