But only for as long as investors remain bullish, and corporate profits stay strong.
When President Trump announced Monday that he would impose new tariffs on $200 billion worth of Chinese goods, markets around the world responded with indifference. An initial drop in China’s stock market was quickly reversed, and US stock markets jumped at the opening bell.
On Tuesday, China said it would retaliate with tariffs on $60 billion of US goods, and yet markets here continued to rise into the afternoon.
Theories abound to explain the complacency. Trump has been talking about these expanded tariffs for some time, so perhaps they were already factored into stock prices. Or maybe investors were warmed by China’s relatively mild response, a reminder that with most traded goods now subject to tariff, there isn’t a lot of room for this trade war to expand.
But it might be better to avoid a deep dive in search of explanation. So long as the really important Wall Street indicators remain strong — like GDP growth and corporate profits — Trump’s penchant for tariffs can be treated as a side issue, something like a misguided but not terribly damaging presidential hobby.
That could change quickly — an economic slowdown might make Trump’s tariffs a lightning rod for criticism — but for now it makes some sense to look past the upfront costs.
Which is not to say that trade wars are benign. Companies that rely on parts imported from China will have to pay more, and that cost will ultimately get passed on to consumers in the form of higher prices for everything from washing machines to cars to Internet routers. China’s retaliatory tariffs will then hurt farmers, chemical companies, and other exporters who want to sell their goods overseas.
But at current levels, the total economic cost of Trump’s tariffs is still fairly contained. By most estimates, we are talking about lopping less than half a percentage point off of annual GDP growth. That’s not enough to offset the stimulative bump from the tax cuts and nowhere near enough to throw the economy into recession.
