To The Moon

While we have probably heard about some updates on the tariffs by Trump, I am toying with the idea that tariffs could trigger a "boom" in the U.S. stock market.

It is a complex and highly debated topic in economics. While proponents argue for potential benefits, historical evidence and mainstream economic theory often point to significant risks and negative consequences.

In this article I would like to share the information I have gathered to unpack the truth behind Trump’s tariffs and why (despite initial volatility )they could paradoxically fuel a stock market boom under certain conditions.

The Argument for a Stock Market Boom (The "Truth" for Proponents)

Protection of Domestic Industries: Tariffs make imported goods more expensive, theoretically increasing the competitiveness and profitability of domestically produced goods. This could lead to higher sales, increased production, and job creation within the U.S., which might boost corporate earnings and, in turn, stock prices.

Reduced Trade Deficit: A primary goal of tariffs is often to reduce a country's trade deficit by discouraging imports and encouraging exports. A smaller trade deficit could be seen as a sign of economic strength and self-sufficiency, potentially boosting investor confidence.

National Security/Strategic Industries: Tariffs can be used to protect industries deemed critical for national security (e.g., steel, semiconductors) or to promote the growth of emerging strategic sectors (e.g., AI, advanced manufacturing). This perceived strengthening of key industries might be viewed favorably by investors.

Leverage in Trade Negotiations: Tariffs are sometimes used as a bargaining chip to force other countries into more favorable trade agreements. If successful, these new agreements could open up markets for U.S. exports or address perceived unfair trade practices, which could benefit U.S. companies.

"America First" Sentiment: For some investors, tariffs align with a nationalist economic agenda, fostering a belief that prioritizing domestic production and jobs will lead to overall economic prosperity. This sentiment itself can drive market optimism, at least in the short term.

What Are Trump’s Tariffs in 2025?

• President Trump reintroduced sweeping tariffs in April 2025, dubbed “Liberation Day” tariffs, imposing:

• A 10% universal tariff on nearly all imports

• Reciprocal tariffs up to 145% on countries with existing trade barriers against the U.S.

• The policy aims to rebalance trade, protect domestic industries, and reduce reliance on foreign supply chains.

Initial Market Reaction: Volatility & Selloff

• The $S&P 500(.SPX)$ plunged nearly 5% in early April, with the Nasdaq dropping over 6%, marking the worst day since the COVID-19 crash.

• Sectors like tech, autos, and consumer goods were hit hardest due to global supply chain exposure.

• However, markets rebounded sharply by late June, with the S&P 500 and Nasdaq reaching record highs.

As we have seen how S&P 500 have performed well in H1, we might expect some volatility in early July. The S&P 500 slipped 0.1% on July 1, 2025, failing to extend its streak of record closes, as the Senate passed a sweeping tax and spending bill.

Why Could Tariffs Trigger a Stock Market Boom?

Despite the short-term pain, several mechanisms could fuel a bullish cycle:

1. Domestic Manufacturing Revival

• Tariffs raise the cost of imports, making U.S.-made goods more competitive.

• This could boost industrial production, create jobs, and stimulate capital investment in sectors like steel, autos, and semiconductors.

2. Corporate Reshoring & CapEx Surge

• Companies may reshore supply chains to avoid tariffs, leading to:

• Increased demand for construction, logistics, and automation

• Tailwinds for infrastructure, industrials, and AI-driven logistics firms

3. Inflation-Driven Revenue Growth

• Tariffs can be inflationary—but mild inflation can inflate nominal revenues, especially for companies with pricing power.

• This benefits consumer staples, energy, and financials, which often outperform in reflationary environments.

4. Policy-Driven Confidence

• Trump’s administration is signaling pro-business, pro-growth policies, including:

• A potential corporate tax cut 2.0

• Deregulation in energy and finance

• These could offset tariff drag and boost earnings multiples.

5. Fed Response & Rate Cuts

If tariffs slow growth or raise inflation modestly, the Fed may cut rates, which historically supports equity valuations.

The Contrarian View: “Short-Term Pain, Long-Term Gain”

Trump himself framed the tariffs as “economic surgery”—painful but necessary to reset trade dynamics. If markets believe:

1. The tariffs are temporary

2. The U.S. gains negotiating leverage

3. Domestic industries emerge stronger

4. Investor sentiment could shift from fear to strategic optimism.

The Economic Reality and Counterarguments (Why a Boom is Unlikely to Be Sustained and Risks are High):

Increased Costs for Businesses and Consumers: Tariffs are taxes on imports. U.S. companies that rely on imported raw materials or components face higher input costs, which can either reduce their profit margins or be passed on to consumers as higher prices (inflation). Higher consumer prices can reduce purchasing power and slow demand.

Retaliation and Trade Wars: The most significant risk is that tariffs provoke retaliatory tariffs from other countries. This was clearly seen in Trump's first term, where China and other nations responded with their own duties on U.S. goods. Such trade wars hurt U.S. exporters, reduce global trade volumes, disrupt supply chains, and increase economic uncertainty, all of which are negative for corporate earnings and stock market stability.

Supply Chain Disruptions: Tariffs force companies to rethink and often restructure their global supply chains, which can be costly, time-consuming, and inefficient. This disruption can negatively impact production, delivery times, and overall business operations.

Reduced Global Growth: Trade wars and protectionism generally lead to a slowdown in global economic growth. As the U.S. economy is deeply intertwined with the global economy, a global slowdown inevitably impacts U.S. companies, especially those with significant international operations or sales.

Market Volatility and Uncertainty: Historically, tariff announcements have consistently led to increased stock market volatility and declines. Markets dislike uncertainty, and unpredictable tariff policies create significant uncertainty about future trade relationships, corporate earnings, and economic growth. While there might be temporary rebounds when tariffs are paused or reduced, the underlying policy often creates an environment of elevated risk.

Dollar Appreciation/Risk Premium: Tariffs can lead to a stronger U.S. dollar, as fewer dollars are needed to pay for imports. A stronger dollar makes U.S. exports more expensive and less competitive globally, hurting export-oriented companies. Additionally, the imposition of tariffs can increase the perceived risk of holding U.S. assets, potentially leading to capital outflows and higher interest rates.

Historical Precedent (Smoot-Hawley Act): The most infamous historical example is the Smoot-Hawley Tariff Act of 1930, which raised U.S. tariffs significantly. This act is widely believed to have exacerbated the Great Depression by triggering widespread retaliatory tariffs, leading to a dramatic collapse in global trade and a severe decline in the stock market.

Recent Experience (2025 Tariffs)

Recent events since Trump's assumption of office in January 2025 show that initial large-scale tariff announcements (e.g., April 2, 2025) led to sharp declines in U.S. stock and bond prices, and even the U.S. dollar.

Subsequent "pauses" or reductions in tariffs have often led to market recoveries, indicating that the market generally reacts negatively to the imposition of tariffs and positively to their removal or softening.

While the overall S&P 500 has been relatively flat or volatile under these recent tariff policies, some segments of the market have experienced declines, particularly those heavily exposed to global trade.

We might want to consider some ETFS which are tariff-resistant in our strategy.

ETFs Which Are Tariff-Resistant

Tariffs can introduce significant volatility and uncertainty into global markets. When seeking "tariff-resistant" ETFs, the goal is typically to find investments that are less directly exposed to international trade disputes or that tend to perform well during periods of economic instability.

Here are three categories of ETFs that are often considered tariff-resistant:

Gold/Precious Metals ETFs

Reasoning: Gold has historically been a safe-haven asset during times of economic and geopolitical uncertainty, including trade wars. Its value tends to have a low correlation with equities and can act as a store of value.

Example: $SPDR Gold Shares(GLD)$ or iShares Gold Trust (IAU) are popular options that track the price of gold bullion.

Utilities Sector ETFs

Reasoning: Utilities provide essential services (electricity, water, natural gas) that people and businesses rely on regardless of economic conditions. This makes them a defensive, non-cyclical sector, and demand for their services is generally inelastic. They often have stable earnings and dividend payments, making them less susceptible to trade-related disruptions.

Example: $Utilities Select Sector SPDR Fund(XLU)$ provides broad exposure to the U.S. utility sector.

Consumer Staples Sector ETFs

Reasoning: Similar to utilities, consumer staples companies produce essential goods (food, beverages, household products) that consumers purchase regularly, even during economic downturns or periods of tariff-induced inflation. These companies often have strong brand loyalty and can sometimes pass on increased costs to consumers.

Example: $Consumer Staples Select Sector SPDR Fund(XLP)$ or $Vanguard Consumer Staples ETF(VDC)$ offer exposure to companies producing everyday necessities.

Risk and Considerations

While these ETFs offer some protection against tariff-related risks, it is crucial to maintain a diversified portfolio across different asset classes and geographies.

Domestic Focus: ETFs focused on companies with predominantly domestic revenue and supply chains might also exhibit more tariff resistance than those heavily reliant on international trade.

Volatility: "Tariff-resistant" does not mean "volatility-proof." All investments carry risk, and market conditions can change rapidly.

Summary

While a very narrow, short-term "boom" for specific domestic industries might occur if they are heavily protected and face no domestic competition, the broader, sustained "boom" in the entire U.S. stock market due to tariffs is highly improbable and goes against established economic principles and historical evidence.

The risks of higher costs, inflation, retaliation, supply chain disruptions, and increased market volatility are substantial. Any market gains often appear to be tied to the softening or removal of tariffs rather than their imposition, as investors generally prefer stability and open trade.

The key to a tariff-fueled boom lies in sector rotation and policy clarity.

Appreciate if you could share your thoughts in the comment section whether you think the market understanding of the truth about trump’s tariffs could help to create a boom.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.