Trump can’t ignore the stock market carnage forever

As it turned out, the only thing Liberation Day was actually liberating anyone from was their money. In the wake of President Trump’s imposition of a massive round of tariffs on America’s trading partners the stock market has been in freefall. For the moment, Trump is ignoring that. But he won’t be able to forever – a bear market is too damning a verdict on his presidency. 

Investors, to put it mildly, took one look at the latest round of tariffs, and dumped equities as fast as possible. In the wake of the tariffs announcement, the Dow Jones Industrial Average plunged 1,679 points, or 4 percent while the S&P 500 sank 274 points, or 4.8 percent, its biggest one-day drop since the Covid collapse in 2020. More than $2 trillion was wiped off the value of the US equity markets. 

It is not hard to understand why. The huge new levies imposed on America’s main trading partners will disrupt supply chains, drive up costs, and may well trigger a full-blown recession. 

President Trump has so far simply shrugged that off. “The markets are going to boom, the stock is going to boom, the country is going to boom,” he said yesterday, dismissing the fall in the markets as no more than a temporary correction. The trouble is, Trump won’t be able to dismiss the collapse in the markets forever.

First, it will trigger a self-fulfilling downturn. When Wall Street drops sharply in value, investors reduce their spending, and companies invest less. A market correction does not create a recession all by itself, but it can accelerate one, and the US already faces an uncertain few months as it adjusts to the new restrictions on trade. Next, Trump cares about the markets. He constantly boasts about how well equities performed during his first term. He can’t convincingly claim not to be interested anymore. 

In reality, you can’t “make America great again” in a bear market. The Trump Project, if that is not too grand a name for it, requires investment and confidence, along with buoyant demand, and lots of red ink on Wall Street is not the backdrop that can make that happen. At some point Trump will have to rationalize a tariff regime that didn’t make much sense to anyone. And he will have to start making deals with some of America’s key trading partners to lift the levies. Otherwise, the markets will keep on falling – and the President will find that very uncomfortable.