Ahead of the Trump tariff announcement, stock markets traded higher. Speculators bet that the President would not hurt international trade with duties.
Traders guessed wrong.
In after-hours trade, the Dow Jones (DJI) fell by more than 1000 points. Tariffs are severely higher than anyone expected. The White House said it would apply reciprocal tariffs on over 180 countries and territories. It also introduced a 10% baseline tariff on any country not listed among the 180.
Nike (NKE), Target (TGT), Walmart (WMT), and Apple (AAPL) will fall in the 7% or more in Thursday morning trade. These U.S. firms depend on sales in many of the 180 countries listed. Their supply chain also touches on them. It will hurt sales and raise costs.
After a 10% stock market correction, expect the 2% – 4% drop in the major indices to shake the most bullish investors.
Some History
The Smoot-Hawley Tariff Act of 1930 raised tariffs on over 20,000 imported goods. The purpose of the Act was to protect American farmers and businesses. Unfortunately, the other countries retaliated. This hurt international trade and exasperated the Great Depression.
Your Takeaway
Treat the tariffs as if the middle and lower-class Americans will pay higher taxes. It will hurt demand, weaken corporate profits, and pressure firms to cut jobs to save on costs.