Since his 2024 campaign, President-elect Donald Trump has promised far-reaching tariffs on many countries. Once Trump is formally inaugurated on Jan. 20, he can make that promise a reality through executive orders or the Republican-controlled Congress.
A tariff is a tax on imports. Trump plans to use them to reduce the U.S. trade deficit and as a bargaining chip to get foreign countries to enact policies in line with his agenda regarding immigration and the border.
Needless to say, investors are closely watching developments on tariffs, which had a big impact on the stock market during Trump's first term. Here's what happened to the stock market during the 11 days when tariffs were announced in 2018 and 2019.
Tariffs can move the market in a big way
The market closely follows politics, but political news and events that move markets significantly are few and far between. Executive orders and new laws don't always move the needle, but tariff announcements during Trump's first term certainly did.
Investors care about tariffs for many reasons. Tariffs can benefit domestic companies by making their products more competitive and by encouraging consumers to buy American. However, tariffs can also have the unintended effect of increasing the cost of producing goods, which impacts the economics of many publicly-traded companies. Higher prices can have a ripple effect on the economy because if companies have to pay more, they will typically look to pass those extra costs to consumers, which can spark inflation. Nobody wants to see inflation reignite after what happened over the past few years. Countries may also retaliate with their own tariff policies, which can also wreak havoc in the market.
Generally speaking, investors reacted negatively to tariff announcements during Trump's first administration. Between Jan. 2018 and Aug. 2019, a trade war broke out between the U.S. and China. Both countries made major tariff-related announcements on 11 different days, and here's what happened to the stock market on each day, according to a paper from the National Bureau of Economic Research:
| Date | Order | Market Performance |
|---|---|---|
| 01-23-2018 | U.S. imposes tariffs on solar panels and washing machines. | 0.3% |
| 03-01-2018 | U.S. imposes tariffs on steel and aluminum. | (1.1%) |
| 03-22-2018 | U.S. imposes $60B in annual tariffs on China. | (2.4%) |
| 03-23-2018 | China imposes tariffs on 128 U.S. exports. | (1.9%) |
| 06-15-2018 | China imposes $50B in tariffs on U.S. goods. | (0.2%) |
| 06-19-2018 | U.S. imposes tariffs on $200B of Chinese goods. | (0.4%) |
| 08-02-2018 | China imposes $60B in tariffs on U.S. goods. | 0.5% |
| 05-06-2019 | U.S. increases tariffs by 25% on $200B of Chinese goods. | (0.4%) |
| 05-13-2019 | China increases tariffs on $60B of U.S. goods. | (2.5%) |
| 08-01-2019 | U.S. imposes 10% tariff on additional $300B of Chinese goods. | (0.9%) |
| 08-23-2019 | China imposes higher tariffs on soy and automobiles. | (2.5%) |
Data source: National Bureau of Economic Research. Market performance represented by value-weighted market portfolio from the Center for Research in Security Prices.