Is President Trump's Trade War Now Priced Into the S&P 500 Index? History Offers a Clue.
President Donald Trump has made good on his promises from the campaign trail and issued sweeping tariffs that have now escalated into a full-blown trade war. The Trump administration issued 25% tariffs on Mexico and Canada, and tariffs on China have increased from 10% to 20%.
All three countries have vowed to respond in kind, and markets are reeling as a result. The S&P 500 (SNPINDEX: ^GSPC) is down 3.9% year to date, as of this writing, and it has given back the gains it enjoyed since Trump was elected in November.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
Has the stock market priced in Trump's trade war? History offers a possible answer.
Looking back at Trump 1.0
President Trump also implemented tariffs during his first term, which eventually escalated into a trade war with China. The market reacted poorly at that time too, with stocks falling on most days when tariffs were announced, according to data from the National Bureau of Economic Research (NBER).
| Date | Order | Market Performance |
|---|---|---|
| 01-23-2018 | U.S. imposes tariffs on solar panels and washing machines. | 0.3% |
| 03-01-2018 | U.S. imposes tariffs on steel and aluminum. | (1.1%) |
| 03-22-2018 | U.S. imposes $60B in annual tariffs on China. | (2.4%) |
| 03-23-2018 | China imposes tariffs on 128 U.S. exports. | (1.9%) |
| 06-15-2018 | China imposes $50B in tariffs on U.S. goods. | (0.2%) |
| 06-19-2018 | U.S. imposes tariffs on $200B of Chinese goods. | (0.4%) |
| 08-02-2018 | China imposes $60B in tariffs on U.S. goods. | 0.5% |
| 05-06-2019 | U.S. increases tariffs by 25% on $200B of Chinese goods. | (0.4%) |
| 05-13-2019 | China increases tariffs on $60B of U.S. goods. | (2.5%) |
| 08-01-2019 | U.S. imposes 10% tariff on additional $300B of Chinese goods. | (0.9%) |
| 08-23-2019 | China imposes higher tariffs on soy and automobiles. | (2.5%) |
Data source: National Bureau of Economic Research. Market performance represented by value-weighted market portfolio from the Center for Research in Security Prices.
When you add up all 11 days in which Trump or China announced tariffs, the NBER found the market fell 11.5%, which amounts to a correction. However, keep in mind this data looks solely at the days when tariffs were announced and does not reflect the market's total performance during the period of tariff announcements. Between Jan. 23, 2018, and Aug. 23, 2019, the S&P 500 was roughly flat. And from the first day Trump took office to the last day of his first term, the market actually performed quite well, posting an average annual return of about 17%.
Has the trade war been priced in yet?
Most countries have said they will enact retaliatory tariffs. China, specifically, has ratcheted up its tone. "If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we're ready to fight till the end," China's embassy said on X, according to BBC.
If you look at the table above, you'll notice the biggest daily drops occurred when China imposed its own tariffs. If the trade war continues, there could be even more pain in store for the stock market. However, Trump could strike some kind of trade agreement with China, Mexico, and Canada, but he seems more likely to go through with the tariffs, at least in the near term.
For one, tariffs were a big part of his campaign, so he is fulfilling a promise to voters. The President may also prefer any economic fallout from the tariffs happen early in his second term, well before midterm elections in 2026.
The risk, of course, is that things don't go as planned, and the effects of the trade war last longer than expected. After all, the economy and stock market can be unpredictable and difficult to control.
Amid this uncertainty, the S&P 500 likely has further to fall, but this is no reason to panic. As you can see from the NBER data, this near-term volatility will not necessarily dictate what happens to the stock market for the rest of 2025, let alone the remainder of Trump's second term and beyond.
Should you invest $1,000 in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $690,624!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
See the 10 stocks »
*Stock Advisor returns as of March 10, 2025
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Recommended Articles
