Trump’s Tariff Playbook 2.0: A Market Opportunity in Disguise?
Article published on February 24th, 2025 8:00AM UK Time
Trump’s return to the White House in 2025 has reignited discussions around tariffs, particularly his proposal for heavy tariffs on Chinese imports and a blanket tariff on all foreign goods. At first glance, such a policy seems like a market disruptor—potentially triggering global trade tensions, a stronger USD, and risk-off sentiment. But what if the market reaction isn’t as negative as expected?
History suggests Trump’s tariff threats may not be about escalation, but negotiation—and that could set the stage for a market rally rather than a prolonged downturn.
Step 1: The Initial Shock – Risk-Off Moves
When Trump threatens tariffs, markets typically react with risk aversion. In the short term:
- The USD strengthens as investors flock to safe-haven assets.
- Equities sell off, with industrials, tech, and consumer goods stocks taking the biggest hit.
- Emerging markets weaken, particularly those reliant on US trade.
- Bond yields drop, as investors seek safety in Treasuries.
This was the case in 2018, when Trump’s trade war rhetoric with China sent markets tumbling. But as history shows, the story doesn’t end there.
Step 2: The Strategic Concessions
Instead of an all-out trade war, Trump’s real objective could well be leveraging tariff threats for better trade terms. This playbook has worked before, and it could unfold like this:
- China responds by lowering tariffs on U.S. agricultural goods, semiconductor imports, and key tech components.
- The EU offers concessions on automobile duties and industrial exports, reducing trade frictions.
- Mexico and Canada adjust USMCA terms, making cross-border trade more favorable for US companies.
With global trade partners opting for de-escalation rather than retaliation, the worst-case tariff scenario may never fully materialize.
Step 3: Trump Declares Victory – The Risk-On Reversal
With trade concessions in hand, Trump delays, rolls back, or softens the tariffs, just as he did in previous negotiations. The markets respond accordingly:
- Trade uncertainty eases, restoring confidence in global supply chains.
Stock markets rally - The USD weakens, boosting multinational earnings and global risk sentiment.
- The Fed remains neutral, avoiding the need for aggressive rate hikes or policy shifts.
What starts as a risk-off event could flip into a full risk-on rebound, with the market pricing in relief rather than prolonged disruption.
This isn’t 2018’s trade war—Trump’s playbook has evolved. Rather than escalation, the focus is now on negotiation and deal-making.