Why Wall Street is brushing off Trump’s escalating tariff threats

The stock market has learned to love President Donald Trump’s tariffs.

Wall Street revolted in April after the president unveiled plans for the highest US import taxes in more than a century. Stocks lost nearly 12% of their value in less than a week, while the rate on the 30-year Treasury bond made its biggest jump since 1982.

The financial market gyrations caused the president to back off and pause the tariffs to open a 90-day negotiating window. The weeks that followed were a blur of tariff attacks, retreats and confusion emanating from the White House.

But since its early April low, the S&P 500 has shrugged off its disquiet over trade policy to gain an astonishing 26%. The president has celebrated the market rebound as validation of his disruptive bid to reshape global trade.

The danger now is that either Wall Street or the president will go too far.

“I do believe the risks are building. Trump now feels a certain sense of invincibility and is willing to take positions on tariffs that are much more aggressive than probably anybody anticipated, because he does seem to believe he can get away with anything,” said Douglas Rediker, chairman of International Capital Strategies, which advises institutional investors.

On Saturday, Trump threatened to impose 30% tariffs on goods from the European Union and Mexico in a fresh escalation of his trade offensive that left room for further diplomatic efforts before the levies take effect August 1.

Investors feel free to continue bidding up stock prices because they assume Trump will always back down from his most costly tariff plans, market analysts said. But the president views stocks’ steady rise as a license to intensify his trade threats, acting out the economic policy equivalent of his 2016 quip that he could “stand in the middle of Fifth Avenue and shoot somebody” without paying a price.

The president’s success this month in piloting through Congress the One Big Beautiful Bill Act, which contained his tax and spending priorities, added to his confidence, Rediker and other financial specialists said.

Trump this week dialed up the trade war, sending notices to nearly two dozen nations of new taxes on US imports of their goods. The presidential notices were noteworthy for several reasons. The tariff on goods from Canada, a close US ally that was expecting to conclude the framework of a trade deal by July 21, was set at 35%.

On Wednesday, Trump hit Brazil, which buys more from the United States than it sells to it, with a 50% tariff. And he did so for reasons unrelated to the trade deficit that he says is a “national emergency” requiring steep tariffs. Instead, Trump’s action grew out of opposition to the trial of a political ally, former Brazilian president Jair Bolsonaro, who faces charges of fomenting a 2023 coup.

In an interview Thursday with NBC News, Trump also disclosed plans to raise to 15% or 20% the current 10% baseline tariff that applies to all US imports.

“I think the tariffs have been very well received. The stock market hit a new high today,” Trump added.

Earlier Thursday, the president crowed about several financial market successes. “Tech Stocks, Industrial Stocks, & NASDAQ, HIT ALL-TIME, RECORD HIGHS! CRYPTO, ‘Through the Roof.’ NVIDIA IS UP 47% SINCE TRUMP TARIFFS. USA is taking in Hundreds of Billions of Dollars in Tariffs. COUNTRY IS NOW ‘BACK,’” Trump posted on Truth Social.

On Friday, the S&P 500 showed little concern over Trump’s remarks, losing 0.3% while trading essentially flat for the week.

The market has shrugged off months of uncertainty over the president’s long-term objectives. Trump has said that he aims to use tariffs to encourage greater domestic manufacturing. But the ultimate shape of universal, country- and product-specific tariffs remains unclear. Legal challenges to his use of tariff authority are working their way through the courts.

The April 2 announcement of steep tariffs aimed at securing “reciprocity” in US trade relations with dozens of nations kicked off an especially tumultuous period.

Financial markets howled, with both stock and bond prices sinking at the same time, an unusual occurrence. Within a week, Trump announced a delay in implementing the tariffs, blaming bond market turbulence for his retreat. The yield on the 10-year Treasury rose by half a percentage point in a matter of days, a notably sharp move in the normally placid market for government securities.

Investors “were getting a little queasy,” the president told reporters.

Tariffs on China, which was not part of the pause, soared to a trade-killing 145% while the president issued orders excluding many electronic products from new levies. Angered over the slow pace of negotiations with the European Union, Trump threatened to hit its products with a punishing 50% tax. Two days later, he backed down.

He doubled the tariff on steel and aluminum to 50%, but agreed to lower the fee applied to those industrial metals from the United Kingdom. Administration officials reached a trade-war truce with China, only to watch it collapse a few weeks later, and then be supplanted by a second attempt a few weeks after that.

The pace of events was dizzying, and investors struggled over the president’s strategy. And yet stocks soon resumed their climb, reaching a fresh all-time high earlier this month.

“Whatever Trump says is irrelevant, because that’s not what he’s going to end up doing. Do we like it? No. It’s a terrible way to do business. Do we have to accept it because that’s all there is? Yes,” said David Kotok, a strategic adviser at Cumberland Advisors.

Some market strategists expect the bull market to endure. Trade policy should become less volatile later this year, as the administration cinches deals with U.S. trading partners, Ulrike Hoffmann-Burchardi, global head of equities for UBS financial services, told clients recently.

The S&P 500 could rise an additional 4% by mid-2026, she said. Some of Trump’s most eye-watering tariff proposals, such as a 200% tax on imported pharmaceuticals, are “unlikely to materialize,” she wrote in a report Wednesday.

“We caution against overreacting in the near term given the lack of clarity on what policy will actually stick and on potential implementation dates,” Hoffmann-Burchardi added.

Bullish investors take comfort in the economy’s resilience amid nonstop tariff news. Warnings of an inflationary spike or a recession have been wrong or at least premature. Consumer prices in May rose at an annual rate of 2.4%, down from 3% when Trump was inaugurated. Employers added 147 000 jobs last month as the economy continued to expand.

The muted economic impact, however, could be temporary. Trump has threatened more tariffs than he’s imposed. Many US companies built up inventories earlier this year, which provide a cushion to ride out at least a few months of disruption.

Inflation this year will be a full percentage point higher because of tariffs, economists at Goldman Sachs told clients Friday. By December, the Federal Reserve’s preferred inflation measure will hit 3.3%, they said.

The president’s baseline tariff of 10% would shave 1% off US gross domestic product, according to Neil Shearing, chief economist for Capital Economics in London.

“That’s not nothing, but it’s not enough to push the US economy into recession,” he said.

Still, more tariffs are coming, even if their specifics remain uncertain. Trump has announced 50% copper tariffs to take effect August 1, and he has ordered Commerce Department investigations that could lead to tariffs on products such as heavy-duty trucks, commercial aircraft and jet engines.

With the markets calm, there is also the risk that Trump may feel emboldened to implement his more extreme threats or to derail the scheduled 2026 review of the United States-Mexico-Canada Agreement that governs North American trade.

“If the market gets the sense that tariff turmoil is doing damage to the economy, he’ll be challenged again, and he’ll be forced to back down,” said Ed Yardeni, president of Yardeni Research. “It’s a crazy kind of a dance between the market and Trump.”

THE WASHINGTON POST