President Donald Trump’s tariffs are creating stock market volatility. The S&P 500 has dropped about 9% from its record high as inflation and growth concerns rise. Trump has consistently stated that he is not concerned about the market’s fluctuations as he implements his protectionist agenda.
However, the S&P 500’s nearly 9% decline from its February 19 peak has led the president to acknowledge that market volatility might be an inevitable consequence as he places tariffs on Canada, Mexico, China, and the European Union. Economic instability, such as the post-COVID inflationary episode, arguably cost Democrats their bid for reelection last year. With high earners propping up consumer spending, a significant stock market decline could dampen their willingness to spend, thereby slowing growth.
Marko Papic, the chief strategist at BCA Research, suggests that a 15% to 20% decline in the S&P 500 would force Trump to start reevaluating his trade war. “For sure he’s going to care about the stock market because he’s going to lose political capital if the economy goes into recession or if households feel poor,” Papic said.
Market impact of Trump’s tariffs
Desmond Lachman, a senior fellow at the American Enterprise Institute, believes the critical factor is the speed and disorderliness of the market’s decline. “I would think it’s got more to do with the speed and disorderliness of the movement,” he stated. “If what’s occurred over the last couple of weeks continues at this pace, he’ll have to cave.”
With a Republican-controlled Congress and a 6-3 conservative majority in the Supreme Court, financial markets may be the last true check on Trump’s power.
“They don’t care what he thinks, they’ll just dump the stocks,” Lachman said of investors. “That’s really the only check we’ve now got on ridiculous policies.”
Should financial and economic volatility persist, other checks on Trump’s ability to impose his policies may emerge. Papic said that while Republican members of Congress are politically punished for protesting Trump’s agenda, a weakened economy and a declining stock market could incentivize senators or representatives to dissent.
“If they mess around and find out, he could be a lame duck in three months,” Papic remarked. “We’ll be writing those takes much faster than anyone thought because he’s got a very narrow majority in the House.”
