The TRUMP Effect: Wall Street's Nonchalant Response to Continuous Tariff Announcements
Increased U.S. Duties Pose No Problem for Wall Street Investors
In the unfolding saga of US trade policies, Wall Street traders have developed an intriguing strategy to weather the tempest. Coined as the TACO (Trump Always Chickens Out) strategy, this approach is a knowing wink at Donald Trump's penchant for threatening tariffs, only to back down at the last moment. Traders have found a way to capitalize on this economic seesaw, making smart bets based on anticipated tariff changes[1]. However, the president has taken offense to this acronym, stating that his actions are often misconstrued as backing down when, in reality, his toughness is criticized[1].
A Dance of Diplomacy: The Present State of US-China Trade Relations
The US-China trade relations have evolved erratically during Trump's presidency. Initially, both countries engaged in a destructive trade war, with each imposing escalating retaliatory tariffs, including a staggering 145% tariff on Chinese goods[1]. However, as negotiations ensued, these tariffs eventually came down to a baseline of 10%[1]. This rollercoaster ride reflects the broader unpredictability and eventual stabilization in trade policies between the two nations. While tensions and reversals are commonplace, both countries have forged agreements to reduce trade tensions, hinting at a move towards more stable trade relations.
At present, the focus lies on upholding these agreements and addressing ongoing trade issues through diplomatic channels. The volatile yet evolving state of US-China trade relations continues to be shaped by political developments and economic factors, with both nations aiming to balance their economic interests and geopolitical strategies.
In the latest chapter of this tumultuous story, Trump has announced a doubling of tariffs on steel and aluminum imports to 50%, starting from June 4. The US and China are also trading accusations over the undermining of recently agreed trade deals, threatening the fragile trade peace between the two nations. The tussle over the handling of rare earths adds another layer of complexity to the bilateral relationship[2].
The Dow Jones, S&P-500, and Nasdaq Composite: Defying the Tariff Uncertainty
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The initial anxiety triggered by the latest round of US tariff hikes didn't faze Wall Street much. After an initial slight loss, the indices showed a surprising gain. Traders attributing the habituation effect pointed out that the US markets have become accustomed to Trump's tariff announcements, and they no longer cause the same level of disruption[2]. Despite the increased uncertainty regarding further developments in the trade conflict, the Dow Jones Index, S&P-500, and Nasdaq Composite all showed a positive trend, with the Dow Jones Index gaining 0.1 percent to 42,305 points, the S&P-500 closing 0.4 percent higher, and the Nasdaq Composite going up by 0.7 percent[2].
Among the notable gainers are steel stocks such as Cleveland-Cliffs, Steel Dynamics, and Nucor, which saw their shares soar following the announcement of higher tariffs on steel and aluminum imports[2].
The Ebb and Flow of the US Economy
The economic data for the day presented a mixed picture, with the US industry activity slowing down according to ISM, but the S&P Global survey for the US industry showing a strengthening compared to the previous month[2].
The proposed change in a tax law by US President Trump, often referred to as the "revenge tax," has caused concern among investors. This measure aimed at foreign governments with US investments could potentially reduce demand for certain US assets and put pressure on the dollar, according to Barclays[2].
The Gold Rush and the Oil Boom
The renewed trade conflict increased demand for the supposedly safe haven of gold, bolstered by a weak dollar[2]. Furthermore, news from Russia fueled oil prices, causing Brent and WTI prices to rise by up to 3.8%[2].
Sources:[1] CNBC, "Wall Street has developed a cringe-worthy nickname for Trump’s undefined trade policy," July 23, 2018.[2] ntv.de, toh/DJ, "Habituation" to Trump New US Tariff Announcements Don't Bother Wall Street.
Enrichment Data:
- TACO (Trump Always Chickens Out): This acronym was coined by Wall Street traders to describe their strategy for navigating the uncertainty surrounding Trump's tariff announcements.
- The unpredictable state of US-China trade relations:
- Initially, both countries engaged in a destructive trade war, with high retaliatory tariffs imposed on each other.
- After negotiations, these tariffs were reduced to a baseline of 10%.
- The current focus is on maintaining these agreements and addressing ongoing trade issues through diplomatic channels. The twists and turns in the US-China trade relationship are influenced by a combination of political developments and economic factors. Both nations are balancing their economic interests and geopolitical strategies.
- The Commission, in light of the volatile US-China trade relations, is closely monitoring the financial sector's response to the tariff announcements, particularly the strategy known as TACO (Trump Always Chickens Out), adopted by Wall Street traders.
- Businesses and investors are closely watching the political arena, particularly the Commission's role in finance, as the continuous tariff disputes between the US and China have a substantial impact on general-news topics such as the economy, industry, and commodity markets like gold and oil.
