The stock market reacted negatively, while interest rates fell, on Thursday (4/3) and into Friday, to the tariff announcement from the Trump administration. Here are a few things to know as we forecast more volatility ahead:
These new trade policies are by design, and in-line with Treasury Secretary Bessent’s recent “detox” comments that we wrote about last month. The Trump administration is looking to reshape the post-WWII global economy and trade structure by enacting across-the-board tariffs, with the long-run goal of making the United States a producer-friendly haven. He has 3 primary goals of the tariffs, his other trade policies, and the brewing trade war:
- Lower interest rates
- Onshore production (manufacturing)
- Weaken the dollar
1. Lower rates will bring cheaper debt to both consumers and businesses while also lowering the interest expense on the national debt. This goal can only be achieved if inflation declines, or we run the risk of stagflation.
2. The onshoring of manufacturing and other production is a major goal of this administration. This goal carries the most uncertainty as the US tries to incentivize companies to relocate production facilities onshore, all while trying to maintain pricing power, and without disrupting supply chains.
3. If the first two goals are achieved, then there is a chance that the US will become a net-exporter of goods, which may result in a weaker dollar. This would mean imports would be more expensive, which in theory would incentivize the consumer to buy local/in-country.
Why all the market volatility? Uncertainty of how this global restructure plays out and to what extent it will disrupt the economy in the short-run, and knowing that the path that will be taken to try and achieve these long-run goals will most likely be bumpy.
The goals are clear, and the administration has said they are willing to endure short-term pain to try and restructure global trade. Time will tell how it all plays out, but we forecast volatility in markets in the short-run as everyone digests the new outlook.