The tariff game challenge: Producing all winners
Wall Streeters knew President Trump was going to levy tariffs on countries near and far. They were aware that the list would include long-time trading partners. They expected that standing trade agreements would be disregarded. Plus, they knew Trump would use reciprocal, higher tariffs if another country introduced or upped tariffs on U.S. goods. And they knew all of this would be done without the Congressional input or approval.
So, why did the stock market plummet? Was Warren Buffet the only person taking preventive action by selling stocks to raise cash? The answer is likely that Wall Streeters thought President Trump was on the side of money-making. Therefore, certainly, they thought, his actions would somehow benefit Wall Street.
Forgotten principles
Wall Streeters appear to have forgotten the two key principles of successful financial actions that are missing from President Trump’s planning:
First, successful financial actions need to abide by laws and regulations. If not, they are viewed as “rogue” and carry high risk of being overturned with the principal actors being punished.
Second, successful financial actions depend on ethical, principled actors. The two primary requirements are honesty and humility. Without them, distrust and disrespect undermine the actions.
A word about humility
Humility can be misinterpreted as being weak. However, in business leadership, humility is strength. It represents many qualities that are necessary for a business team’s success. Below is a good humility and non-humility attribute listing from CEO World (July 4, 2020) in “Being Humble: The Importance Of Vulnerability And How Leaders Can Embrace It” by Ben Renshaw:
The key attributes of arrogance and humility
Important: Understand U.S. tariff history
Much of the tariff discussion is myopic – centered on today. However, what we see now has been a decades-long creation as countries worked together to foster mutual trade benefits and economic well-being. Understanding that history is the key to foreseeing the uncertainties and risks of the new tariff actions.
There is an excellent description of U.S. tariff history by the Congressional Research Service. (“CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.”)
This “U.S. Tariff Policy: Overview” article (updated January 31, 2025) contains the information necessary to evaluate President Trump’s actions. Reading the entire two-page write-up is important. Below are a few paragraphs that are especially relevant today (underlining is mine):
“Rules-Based Global Trading System
“The rules-based global trading system was established following World War II. It began as the General Agreement on Tariffs and Trade (GATT), which was later integrated into a larger set of agreements establishing the WTO [World Trade Organization]. This system aimed to reduce trade barriers and prevent trade wars by establishing rules for the use of tariffs.”
“Since 1934, the United States has reduced or eliminated many tariffs as part of bilateral and multilateral trade agreements. By supporting the creation of the GATT and the WTO, the U.S. Congress sought to reduce tariff rates globally within a rules-based trading system. Roughly 70% of all products enter the United States duty free.”
“The first Trump Administration was openly critical of low- tariff policies and made extensive use of authorities delegated to the President to increase tariffs on certain goods…
“Some Members [of Congress] have supported the increased use of tariffs; however, others have expressed concern about the economic impact of increasing tariffs. Some Members and committees have also expressed concerns about the President raising tariffs without congressional approval.”
The bottom line: Worse to come?
Wall Street’s “surprise” sell-off may last for some time, particularly if a new tariff “war” erupts.
Worse, though, the fallout from the tariff increases are not the only uncertainties facing the U.S. economy and financial markets now. (See “Significant Uncertainties Put U.S. Stock Market At Risk”) Also, remember that uncertainties can be more worrisome than known risks. Dismal uncertainties can easily become frightening.
What to do now? Based on my sixty years of investing, I prefer to hold cash and watch events play out. The purpose is not to sit out until the dust settles because stocks will have risen by then. Rather, it is to wait until the unknowable uncertainties become understandable risks, and then a sense of overdone selling combined with a hint of improvement appears. (At that point negativity is still rampant, so the weak prices begin to look attractive.)
