The past week has been a roller coaster ride for the stock market and bond market. If you’ve been watching the news or checking your investments, you’ve probably noticed some big ups and downs. Let’s break down what’s been happening in simple terms and why President Trump’s recent tariff announcements are causing such dramatic market reactions.

What Happened This Week?

President Trump recently announced what he called “Liberation Day” tariffs on imports from most countries around the world. This announcement sent shock waves through the stock market, causing significant drops over the past five days.

Then just this morning, the market briefly jumped up when news spread that the president might be considering a 90-day pause on these tariffs. However, this news was quickly discredited, and the market began falling again.

What Are Tariffs Anyway?

Think of tariffs as taxes on products coming into our country from other countries. For example, if a company wants to bring shoes made in China to sell in America, they might have to pay an extra 10% or 25% tax on those shoes.

When tariffs are added:

• Imported products become more expensive
• Companies either raise prices for customers or make less profit
• Sometimes companies decide to make products in America instead, which can create jobs here

Why Did Trump Announce These Tariffs?

President Trump calls these “Liberation Day” tariffs because he believes they will:

1. Protect American jobs – By making foreign goods more expensive, companies might choose to make products in America instead
2. Reduce dependence on other countries – He wants America to rely less on goods from other countries
3. Force better trade deals – He believes tariffs give America leverage to negotiate better international trade agreements
4. Balance trade deficits – America buys more from other countries than they buy from us, and he wants to change that

In President Trump’s view, past presidents allowed other countries to take advantage of America through unfair trade practices, and these tariffs will help fix this problem.

What Do Most Economists Say About Tariffs?

Most economists have a different view on tariffs:

1. They act like a tax on consumers – When imported goods cost more, regular Americans end up paying higher prices
2. They can hurt American businesses – Many American companies need parts or materials from other countries to make their products
3. They can trigger trade wars – Other countries often respond with their own tariffs on American goods
4. They can slow down economic growth – By disrupting supply chains and increasing costs

Most economists believe that while some targeted tariffs might help specific industries, broad tariffs across many products and countries typically do more harm than good for the overall economy.

Which Specific Markets Have Been Hit Hardest?

The “Liberation Day” tariffs have affected several specific sectors of the stock market more than others:

Technology Companies

Tech companies have seen some of the biggest stock drops because:

• They often rely heavily on global supply chains
• Many have manufacturing operations in countries like China and Vietnam
• Their products contain components from all over the world

Companies like Apple, which manufactures iPhones in China, and semiconductor makers like NVIDIA and AMD have seen significant stock price declines. These companies need specialized parts from around the world to make their products.

Automotive Industry

Car manufacturers have been hit hard because modern vehicles contain thousands of parts from dozens of countries:

• Ford, General Motors, and Tesla stocks have all dropped
• Even American-made cars include imported components that would become more expensive
• Foreign automakers with factories in America, like Toyota and Honda, also face higher costs for imported parts

Retail Companies

Retailers that sell many imported products are seeing stock declines:

• Walmart, Target, and Amazon sell many goods made overseas
• Clothing retailers are particularly vulnerable since most apparel is manufactured abroad
• Home improvement stores like Home Depot and Lowe’s sell many imported tools and building materials

Agriculture

American farmers are concerned because:

• When the U.S. places tariffs on other countries, those countries often place retaliatory tariffs on American farm products
• During previous trade disputes, American soybeans, pork, and other agricultural products faced steep tariffs in important markets like China
• This can lead to lower prices for American farmers even though they don’t directly import goods

A Brief History of Tariffs in America

Tariffs have played a major role throughout American history, often sparking intense debate:

The Early Days: Funding the Government

In the early years of our country, tariffs were the main way the federal government raised money:

• The second law ever passed by Congress in 1789 was a tariff act
• These taxes on imports provided about 90% of federal revenue before the income tax was created
• They helped fund the building of America’s early infrastructure

The Smoot-Hawley Tariff: A Cautionary Tale

One of history’s most infamous tariff policies came during the Great Depression:

• In 1930, Congress passed the Smoot-Hawley Tariff Act, raising tariffs on over 20,000 imported goods
• Other countries quickly retaliated with their own tariffs on American goods
• International trade plummeted by roughly 66% over the next few years
• Many economists believe these tariffs made the Great Depression longer and worse

Post-WWII: Embracing Free Trade

After World War II, America led a global shift toward reducing tariffs:

• The General Agreement on Tariffs and Trade (GATT) was established in 1947
• This eventually became the World Trade Organization (WTO)
• Average U.S. tariff rates fell from about 20% in the 1930s to around 3-4% by the 2000s
• International trade expanded dramatically during this period

Recent History: Return to Tariffs

In recent years, tariffs have made a comeback as a policy tool:

• During his first term, President Trump imposed significant tariffs on China, Europe, Canada, and other trading partners
• This included tariffs on steel, aluminum, solar panels, washing machines, and various Chinese goods
• Many of these tariffs remained in place during the Biden administration
• The new “Liberation Day” tariffs represent an expansion of this approach

Why Is the Stock Market Reacting So Strongly?

The stock market doesn’t like surprises or uncertainty, and these tariff announcements created both. Here’s why investors are worried:

Higher Costs for Companies

Many American companies rely on global supply chains. Apple needs parts from Asia for iPhones. Car manufacturers need components from around the world. When these parts suddenly cost more due to tariffs, company profits can drop.

Fears of Retaliation

Investors worry that other countries will respond with their own tariffs on American products. This happened during previous tariff announcements, making it harder for American companies to sell their products overseas.

Economic Growth Concerns

Tariffs can slow down economic activity by making things more expensive and disrupting business operations. Investors fear this could eventually lead to slower economic growth or even a recession.

Inflation Worries

When imported goods cost more, prices go up for everyone. This inflation can cause other economic problems and might force the Federal Reserve to keep interest rates higher for longer.

What About the Brief Market Rise This Morning?

This morning, a news report suggested that President Trump might be considering a 90-day pause on implementing these tariffs. The stock market immediately jumped up on this news because:

• It would give businesses more time to prepare
• It might signal that the administration was reconsidering the tariffs
• It could provide an opportunity for negotiations with other countries

However, this report was quickly discredited – meaning it wasn’t accurate. When investors realized the tariffs were still moving forward as planned, the market started falling again.

Learning from History: Different Outcomes of Tariffs

Looking at American history, we can see that tariffs have had different effects depending on the circumstances:

When Tariffs Seemed to Help

During America’s early industrial development in the 1800s, some historians argue that tariffs helped protect young American industries like steel manufacturing and textiles:

• These protected industries could grow without facing immediate competition from more established European factories
• Once American companies became stronger, they could better compete internationally
• This approach is sometimes called the “infant industry” argument

When Tariffs Clearly Hurt

The Smoot-Hawley tariffs of 1930 show how tariffs can backfire:

• They were meant to protect American farmers and manufacturers
• Instead, they triggered a trade war that crashed global trade
• American exports fell dramatically as other countries put tariffs on our goods
• Both American producers and consumers ended up worse off

This historical example is frequently cited by economists who oppose broad tariffs today.

What Might Happen Next?

No one can predict the stock market with certainty, but here are some possibilities:

1. Continued volatility – The market might keep bouncing up and down as more details about the tariffs emerge
2. Company-specific impacts – Some companies will be hurt more than others, depending on how reliant they are on global trade
3. Potential negotiations – Other countries might come to the negotiating table to try to get exemptions from the tariffs
4. Economic data impacts – As we see how these tariffs affect prices, jobs, and economic growth, markets will react to this information

The Bigger Picture

It’s important to remember that stock markets go through periods of volatility all the time. While these tariff announcements are causing significant short-term reactions, the economy and stock market are influenced by many other factors too.

For everyday Americans, the most direct impact of these tariffs might eventually be seen in the prices we pay for products. Everything from electronics to clothing could potentially become more expensive if these tariffs remain in place.

Understanding Both Sides

This issue highlights different views about international trade:

The “America First” View: Trade should be managed to protect American industries and workers, even if it means higher prices for consumers.

The “Free Trade” View: Open trade keeps prices lower for consumers and helps the global economy grow, even if some industries face tougher competition.

There are valid points on both sides, and reasonable people can disagree about which approach is better overall.

What’s clear is that major policy changes like the “Liberation Day” tariffs create ripples throughout the economy and financial markets. As investors try to understand what these changes mean for businesses and the economy, we’ll likely continue to see the stock market respond with heightened sensitivity.

For now, many market observers are watching closely to see:

• Which specific products will face tariffs and how high they’ll be
• How other countries will respond
• Whether adjustments will be made before full implementation
• How companies will adapt their supply chains and pricing

The coming weeks should provide more clarity on these important questions.

This post is for informational purposes only and does not constitute investment advice. Always conduct thorough research and consult with financial professionals before making investment decisions.

About the Author: Dr. BWMD is a practicing physician and parent who writes about the intersection of medicine and personal finance. When not seeing patients or writing about physician finances, he enjoys spending time with his family and teaching the next generation of medical professionals about the importance of financial wellness.