Tariff Turmoil Continues

The S&P 500 dropped 6.1%, the Dow tumbled 2,262 points, and the Nasdaq sank 6% on Friday, hitting their lowest levels since last May of 2024 and extending Thursday’s sell-off. Overall, the S&P 500 declined 9% for the week after Trump announced sweeping tariffs, including a base 10% tariff on all countries and an additional ‘reciprocal’ (meaning negotiable) tariff of on countries with the largest trade deficits with the United States. The trade war escalated further on Friday as China’s finance minister announced a 34% tariff on all US imports, mirroring the levy imposed by President Trump on Wednesday. The higher tariffs increase the risk of a recession this year.  

On the data front, however, payrolls rose far more than expected, and initial unemployment claims remained low throughout March, continuing to point to a healthy labor market. Almost all of the layoffs in the labor market have been in the government sector thus far, though it is likely that we will see some layoffs in the private sector if the economy weakens. The labor market will be an important barometer for the strength of the economy. If the labor market holds then the economy may be able to weather the increased tariff burden. 

The goal of the tariffs of course is to increase domestic manufacturing. Onshoring, the process of bringing foreign manufacturing back to the United States, was already a trend after the pandemic exposed the fragility of the current supply chains. The tariffs may accelerate this trend. For example, Apple has announced $500 billion in US projects over the next four years, including an advanced manufacturing facility in Houston. Hyundai announced a plan to build a $5.8 billion steel plan in Louisiana as part of a $21 billion investment in the U.S. Eli Lilly plans to open four new manufacturing ‘mega-sites’ in the next five years to reduce its reliance on overseas suppliers, creating approximately 3,000 new jobs at the company. Of course, all of these projects will take time, and they are only a fraction of the huge U.S. trade deficit. 

The U.S. economy has proven to be incredibly resilient. Will the economy be able to withstand the increased cost of these tariffs? The jury is still out. So far, the stock market is showing massive concern.