Why aren’t the stock markets spooked by Trump’s new tariffs?

As President Trump unveiled his latest round of tariffs last night, investors barely paid any attention. The stock markets barely moved. The currency markets remained sleepy. And most of the traders in the global financial markets went back to planning their summer holidays. Compared to ‘Liberation Day’ back in April, it was a damp squib. Have investors learned to shrug off Trump’s obsession with levies on imports? They certainly matter far less than he thinks they do. 

It was a typically eccentric performance. Yesterday afternoon, the White House fired off a series of letters imposing new tariffs on some of America’s main trading partners. Japan faces 25 per cent tariffs, as does South Korea, while South Africa faces 30 per cent and Laos 40 per cent.

This was an odd mix. South Africa appears to have annoyed the President with some American rhetoric. Meanwhile, exactly why the leader of the free world is bothering to spend so much time worrying about trade with Laos, which exports a total of $246 million (£181 million) of goods into the US, is a mystery to everyone. And yet, the more significant point was this: the market barely moved. Indeed, both the Tokyo and Seol indexes were up slightly on the day.

There are two reasons for that. First, there is an expectation that Trump’s new tariffs will quickly get negotiated away. The latest round of tariffs don’t come into effect until next month. Over the next few weeks, there will probably be a few concessions, the White House will declare that it has secured a ‘great deal’ and the levies will be lifted.

Companies have also figured out how to manage their way around them. It might mean shifting production to another country with lower tariffs. It might mean building a factory in the United States. It might just mean absorbing the levy, or else simply raising prices in America. It might even be a mix of all three. But one way or another, businesses are figuring out how to cope. The tariffs are an annoyance, but not much more than that. 

The markets and the world’s biggest companies have seemingly learnt to shrug off President Trump’s tariffs. The lesson of Liberation Day, when the markets went into meltdown, has been learned. They don’t matter very much. Over the next four years, the President will no doubt periodically impose new sets of levies on imports. But increasingly, no one else will pay much attention to them.