On March 1st the president announced that the U.S. would impose large tariffs on imported steel and aluminum. Later, Reuters reported that Trump may charge over $60 billion in new tariffs on Chinese goods.
None of this is positive news for a stock market that just reached its ninth bull-market year, making it elderly by historical standards.
Investors should also be concerned because tariffs add friction to U.S. imports and exports. At their worst, they can lead to trade wars, which make economic losers of everyone.
But who cares about a 25 percent tariff on foreign steel, you might ask.
The problem is, China and the European Union may decide to reciprocate by slapping their own tariffs on U.S. exports of software, pharmaceuticals, manufactured goods, or worst of all, agricultural products, which generated a net surplus of over $21 billion last year.
They could also target Boeing, the largest U.S. manufacturing exporter. It doesn’t take much of an imagination to envision China adding tariffs to U.S. aircraft products, or worse, directing all aircraft orders to Airbus.
Through ramifications to the manufacturing and agricultural sectors alone, any gains from the proposed $60 billion tariffs on Chinese goods could go out the window pretty darn quickly.
Then you’d care, because it would affect your portfolio. Boeing’s stock alone has contributed to nearly 25 percent of the Dow Jones Industrial Average’s growth since the end of 2016.
It’s not just Boeing. Approximately 46 percent of sales for the companies listed on the S&P 500—a significant part of most portfolios—come from exports to foreign countries. If trade spats get out of hand, what starts as a tariff on imported steel could end by blowing a hole in our portfolios. Seems like a bad deal, if you ask me.
If you want to learn more about tariffs and trade wars, check out these articles: Trump’s ‘Smart’ Tariffs Don’t Make Economic Sense and Trump tariffs may imperil a delicate global economic rebound