The Trump tariffs were bigger than expected and US stocks have been smashed, with the likes of Lululemon losing 11% at one stage because 90% of its products are made in Vietnam, Cambodia, Sri Lanka, Indonesia and Bangladesh. And Vietnam, which produces 40% of the athleisure companies products was hit with a 46% tariff!

The question we have to ask ourselves is whether this current stock market correction, which means the market is down 10% plus, will turn into a crash? This would mean a 20% or more fall in stock prices, which tends to bring a recession, a big jump in unemployment and much lower interest rates.

My view is that Trump will U-turn on some of his big tariffs and the market will rebound. The problem is that my success on guessing where stock markets go was built on US and EU political leaders being largely rational, internationally co-operative and not willing to spook stock markets like one Donald J. Trump. When it comes to investing for my clients, my subscribers and myself, this guy is not my kind of guy, making him impossible to read with confidence. This is why markets are tanking today.

The Trump presidency has brought with it an economic naivety, which has been dressed up as a nationalistic get-even with those countries that imposed tariffs on US producers. It was seen as a way to create jobs in the USA and collect tariff revenue from foreign exporters that would bankroll lower taxes.

It was a neat little plan that confounded sensible economists, who’d learnt that the freer the trade between countries, the better off countries would be. But this didn’t make sense to those who wanted to vote for someone like Donald Trump, who didn’t realise that while American blue-collar workers have lost out in a modern world, their fellow Americans in white collar businesses (i.e. banking, credit cards, computing, AI, the internet, streaming services, movie making and so on) dominate the world!

This also brings a lot of US exploitation of consumers and businesses that we’ve been powerless to stop to any large degree.

But what has confounded me has been the gutlessness of US chief executives and boards to tell the President that his tariffs are way over-the-top, and that the world wouldn’t cop it. So, what we’re seeing now is the stock market, along with its most influential players (i.e. big global fund managers, significant investors, super and pension fund managers and others) telling Donald Trump that his tariff plan is crazy!

Of course, the CEOs of Wall Street knew the Trump tariffs weren’t based on sensible economics, but no one had the intestinal fortitude to stick it to the President by giving him the truth because he’s clearly a vindictive guy. It’s been like an “Emperor’s got no clothes” situation and the collective selling actions of the market is screaming it out loud!

At the close, the Dow was down 1679 points or 3.98%, while the NASDAQ lost nearly 6%. That’s a blood bath.

Our market lost only 0.94% yesterday but it’s going to be ‘ugly’ today. It will be pretty bad until Trump backs off on these mad tariffs, which usually informed players have argued are only the starting points of bargaining.

Carlos M. Gutierrez, former Commerce Secretary to George Bush and a one-time CEO of Kellog’s, told CNBC that he thought most of these tariffs would be “gone in six months”, meaning that the Trump team would eventually negotiate with the countries in question and deals would be struck.
For example, he told CNBC that he sees the 10% German tariff on US cars easily reduced to the 2.5% tariff that the Americans hit German cars with. He foresees a big trade deal with China, which is now facing an in-total 54% slug on its exportable products.

Did I say this is Trump tariff madness?

However, this President will be brought to his senses by this Wall Street reaction, but it could take some time given the nature of Donald J. Trump.

At the core of this big sell-off has been the surprise of the size of his “kind reciprocal tariffs”, as he called them, because they were often half of what US products have been taxed by these countries.

“If he would have come in with just the 10%, I think the markets would probably be up quite a bit right now,” said Larry Tentarelli, chief technical strategist at the Blue Chip Trend Report. “But because the tariffs came in bigger than many expected, I think what that does is it creates more downside volatility right now.”

These bigger tariffs with the major players (i.e. the EU, China, Japan and so on) are ambit claims or nasty bargaining chips that Trump has thrown at many countries, which will hopefully be reduced, and this will help bring back higher share prices.

One of the best market callers is Tom Lee of Fundstrat and this is how markets.businessinsider.com reported his views on this sell-off: “Tom Lee isn’t backing down. As markets wobble under tariff drama and recession fears, one of Wall Street’s most unapologetic bulls says investors need to hang tight—because President Trump wants stocks to rally. That’s the call Lee’s making, and he’s sticking to it.”

Lee says Trump does not want Wall Street to give him a thumbs down. He does not want a recession, and he has a lot of skin in the game, including bitcoin, which today is A$129,000 after being $169,000 at the beginning of February — that’s a 23% fall!

While I largely agree with Lee, the next challenge for share prices will be the reaction of the USA’s trading partners, who today must feel more like trading enemies rather than partners.

That’s what Donald Trump has brought to the international table. We can only hope it doesn’t end up being a long trade war or else the world will rue the day that a majority of voting Americans thought Trump as the 45^th President of the USA was a good idea.

If the former Commerce Secretary is right that these tariffs will be largely gone in six months, we will see a big rebound in stocks. And I think as Trump pulls off trade deals, which he needs to do, stocks will make a comeback.

We have to keep calm, knowing that a guy like Trump, with a big ego, couldn’t stand the stock market to crash and the economy to go into a recession on his watch. I expect Trump will act to make sure that this market correction doesn’t turn into a crash, but he won’t want to wait too long.