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Will President Donald Trump’s New Sweeping Tariffs Cause a Stock Market Crash? History Couldn’t Be any Clearer.

The last two-plus years have been paradise for optimists on Wall Street. Since the start of 2023, the iconic Dow Jones Industrial Average (DJINDICES: ^DJI), widely followed S&P 500 (SNPINDEX: ^GSPC), and growth stock-inspired Nasdaq Composite (NASDAQINDEX: ^IXIC) have respectively increased in value by 35%, 58%, and 89%, as of the closing bell on Feb. 6.

There is a slew of catalysts lifting the broader market higher, including the rise of artificial intelligence, strong corporate earnings, a decline in the prevailing rate of inflation, and more than a dozen high-profile companies announcing stock splits last year.

But perhaps nothing has been more influential for the stock market over the last three months than Donald Trump’s election night victory. During Trump’s first term in the White House, the Dow Jones, S&P 500, and Nasdaq Composite respectively rose by 57%, 70%, and 142%.

President Trump addressing reporters. Image source: Official White House Photo by Shealah Craighead, courtesy of the National Archives.

Wall Street appreciates the prospect of additional corporate tax cuts and deregulation, which can foster an uptick in merger and acquisition activity, as well as fuel stock buybacks.

However, not every action taken by President Trump is necessarily viewed as a positive by investors. With the president recently unveiling new sweeping tariffs, the question has to be asked: Can tariffs spark a stock market crash?

A little more than a week ago, President Trump held true to his campaign promise of using tariffs to promote American interests by introducing a 25% tariff on select imports from Canada and Mexico, as well as a 10% tariff on imports from China.

Shortly after the tariffs on the United States’ direct neighbors were announced, respective 30-day stays on imposing these 25% tariffs were put into place. However, the 10% tariff on China did go into effect, with the world’s No. 2 economy retaliating with tariffs of its own, ranging from 10% to 15% on various American energy commodities and agricultural machinery.

The goal with tariffs is to protect domestic interests by making homemade products more cost-competitive with those being manufactured overseas. In other words, it promotes the “America first” ethos that President Trump campaigned on.

But based on a recent analysis conducted by Liberty Street Economics (Do Import Tariffs Protect U.S. Firms?), which publishes research reports for the Federal Reserve Bank of New York, public companies directly exposed to tariffs during Trump’s first term did endure a decisively negative impact on their stock price.


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