Market volatility and cautious optimism

Stock market reactions are mixed: After Trump’s tariff threat, the U.S. stock market has fluctuated to some extent, but the overall performance is relatively mixed. For example, the Dow Jones Industrial Average climbed to another record high on Tuesday after the news came out, and some major market indexes showed an upward trend. However, the stock prices of some industries that are more affected by tariffs, such as automakers, were hit hard that week, and the stock prices of Canadian railway companies also fell. The exchange rates of Mexican and Canadian currencies against the US dollar weakened.

Investors are cautiously optimistic: Some investors have gained some confidence from Trump’s decision to choose Scott Bessant as Treasury Secretary, believing that it may have a moderating effect on the president’s decision. Some investors said that they learned lessons from the market experience after Trump’s first election. At that time, Trump often released news through social media, which caused large fluctuations in stocks, commodities and currencies, but as negotiations progressed and the situation eased, the market would return to stability, so there was no excessive panic this time.

Concerns about inflation and economic growth being hindered

Inflation expectations are rising: Many economists and analysts have warned that Trump’s tariff policy may significantly push up inflation. Wall Street banks such as Goldman Sachs pointed out that the imposition of high tariffs across the board may severely hit economic growth. According to Deutsche Bank analysis, if Trump imposes a 25% tariff on Canadian and Mexican imports and half of the cost is passed on to consumers, a key inflation indicator will rise by 0.8 percentage points next year. S&P Global Ratings also predicts that if a 10% tariff is imposed on all core goods imported into the United States, it could raise the U.S. consumer price index by as much as 1.8 percentage points.

Economic growth is suppressed: Experts generally believe that tariffs will drag down U.S. economic growth. Morgan Stanley Chief Global Economist Seth Carpenter predicts that if the tariffs are introduced all at once, it will have a “huge negative impact”, and even if they are gradually introduced, it will stifle the economy over time, and the impact will begin to ferment in 2025, and the damage will be irreversible by 2026.

Viewing tariff threats as a negotiating tool

Many investors and analysts believe that Trump’s tariff threats should be viewed primarily as a negotiating tool. For example, in 2019, Trump threatened to impose tariffs on Mexico to stop illegal border crossings, and about a week later, those planned tariffs were canceled after the United States and Mexico reached an agreement. This time, Trump explicitly proposed to impose tariffs on Canada and Mexico as a strategy to reduce the influx of drugs and immigration. Investors believe that his purpose may be to use this as a bargaining chip to force Canada and Mexico to make concessions on related issues.

Pre-arrangement and strategy adjustment

Enterprises stock up in advance: Some companies have begun to arrange in advance to cope with the possible increase in tariffs. For example, the owner of an American skin care company contacted Chinese suppliers to order a year’s inventory on the night of Trump’s victory, and Yedi, a home appliance company headquartered in Los Angeles, also rushed to purchase home appliances from overseas.

Supply chain adjustment: Some experts pointed out that in a world where tariffs continue to be higher and wider, companies may need additional strategies to cope. For example, economists said that importing companies usually pass on tariff costs to consumers by raising prices, but companies may also consider adjusting the supply chain, looking for other suppliers or increasing domestic production to reduce the impact of tariffs.