On Friday, President Donald Trump promised just that — and more. He announced that as of August 1, Mexico and the European Union will be hit with a 30% tariff. The announcement, which was made through a series of letters, rattled the financial markets. Consequently, leading stock market indices have undergone a dramatic decline.
The Dow Jones Industrial Average fell 1.02%, wrapping up a third-straight week of gains. Its new record high closes 1.56% below its most recent record high. Emerging markets The S&P 500 only had its first down week in three weeks, declining 0.31%. It’s currently 0.48% off its all-time high. The tech-heavy Nasdaq Composite fell 0.08%, bringing its three-week winning streak to an end. It’s currently down 0.34% from its all-time peak.
Trump’s unilateral decision to impose tariffs has raised concerns among investors regarding inflation and its potential impact on consumer prices. As financial analysts have pointed out, the impact of these tariffs will depend quite a bit on companies’ ability to set prices.
“Inflation is here with tariffs. It’s just a question of who eats it. Those companies that have pricing power means that consumers are going to eat it. Those companies that don’t have pricing power means that companies are going to eat it via a cut in their profit margin.” – Peter Boockvar
National Economic Council Director Kevin Hassett blinked on the tariff decision. Additionally, he called attention to the fact that it’s within President Trump’s authority to fire Federal Reserve Chair Jerome Powell. As Politico notes, Trump has even more recently blamed Powell for still not lowering interest rates. He’s convinced that a much needed rate cut is the answer to stimulating more economic growth.
The Trump administration is investigating the renovation costs of the Federal Reserve’s main building in Washington, D.C., highlighting the administration’s focus on economic management as it navigates turbulent waters.
Financial markets have already begun to price in the effects caused by the new tariffs. Next week is a huge week for earnings from the corporations in the energy industry. On Tuesday, JPMorgan Chase, Wells Fargo and Citigroup are set to announce their earnings. After that, on Wednesday 8th, large firms like Johnson & Johnson, Bank of America, Goldman Sachs, Morgan Stanley and United Airlines are all expected to do the same. PepsiCo and Netflix on deck for earnings on Thursday, ending with American Express on Friday.
Investors remain cautious as they assess the broader implications of the tariff announcement and its potential ripple effects throughout the economy. Potentially more impactful, the continuing uncertainty over global trade relations is likely to cast a long shadow on market performance over the next several weeks.