Fuelled by expectations of a Wall Street-friendly policy platform, a “Trump bump” pushed the S&P 500 up 2.5% by the time the ticker tape had been cleared.
The rally continued after his inauguration, with the index peaking 6.3% higher by mid-February.
Since then, however, a “Trump slump” has sent markets crashing back to where they started, accelerating in the last week of unpredictable moves.
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The reality of an economic program built on trade wars saw the S&P hand back all its post-election gains by Tuesday, then fall further as tariffs imposed by executive order were removed by presidential whim.
That Trump turned to tariffs should be no surprise.
They were a central campaign promise, the “most beautiful word” in the president’s limited lexicon. The belligerence and unpredictability with which they have been deployed, however, has left markets spinning.
On Tuesday, Trump placed tariffs on America’s three largest trading partners, two of whom – Mexico and Canada – it has a free-trade agreement with. They both faced 25% levies on exports to the US (10% on the Canadian heavy crude oil on which the US still depends to keep petrol prices down) while levies on Chinese imports doubled to 20%.
Within 48 hours, the measures against Mexico and Canada were paused, leaving US businesses, economists, and trading partners wondering whether, for all his bluster, market sentiment could be a brake on the president’s ambition.
That tariffs are costly, disruptive and divisive is not in question.
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Faced with huge price rises, importers have two choices: to absorb the additional cost by cutting profit margins, investment and ultimately growth, or pass them on to customers, increasing prices.
The impact was broad and immediate, sowing confusion and chaos.
The US car industry and its suppliers saw three changes to trading arrangements in 48 hours; executives of major retailers including the giant Target warned of price increases; while three north-eastern US states faced soaring energy bills as a result of counter-tariffs from Ontario that threatened supply.
Unclear motivation
What is less clear is whether Trump’s motivation is economic or political.
Treasury secretary Scott Bessent suggested on Friday it is both.
In an interview with CNBC, he said the tariffs were intended to address America’s fentanyl crisis, providing leverage to persuade Canada and Mexico to tackle cross-border smuggling, and China to curb the flow of precursor chemicals.
But Mr Bessent also insisted the Trump program will require consumers to “detox” from government support while they wait for the private sector to provide the jobs and wage growth required to outpace inflation.
That sounds like a more fundamental reset, one in which the value of the dollar, falling all week, is less of a priority.
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For the president and some of those close to him, tariffs are ideological.
Their protectionist argument is that cheap imported consumer goods have hollowed out American manufacturing, with the resulting trade deficits amounting to a tax on American jobs.
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Imposing tariffs runs the theory, discourages imports and encourages manufacturing at home.
But that is a long-term correction, with the short-term cost borne by American companies and consumers and, in turn, a global economy that still orbits around the US.
There will be further tests in the coming weeks, with the White House due to announce a global reciprocal tariff regime, including the EU and UK, on 2 April.
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By then we may have a better sense of whether Mr Trump’s popularity, and his ego, can withstand a market downturn, rising prices, and the criticism that would come with them.
