President Donald Trump has a high tolerance for pain in the stock market. An analysis of his tariff decisions during his firm term from 2017 to 2020 show he is likely to display a continued willingness to escalate current threats regardless of market response, according to Nomura. Trump's tariff moves in his second term have been far more extreme than his first, occurring at the same time as the artificial intelligence trade that previously powered the U.S. equity market has faltered and as high stock valuations spook investors. A stark difference between his tariff actions then and now is Trump's characterization of them today as both a useful source of revenue and as a tool to address U.S. trade deficits, suggesting more tariffs could end up as permanent, according to a report from Nomura economists led by Jeremy Schwartz. That could have dire implications for the stock market, already stricken by volatility and buffeted by fickle decision-making when it comes to tariff threats. This week, the three major stock averages have each dropped more than 2% after Trump imposed new U.S. tariffs on Canadian and Mexican imports and higher levies on Chinese goods. Investors who were betting on the "Trump-lite" narrative have since gotten burned, CNBC reported. "The history of Trump's first term suggests he is willing to escalate trade conflicts, despite equity market weakness and volatility," Schwartz said in a Wednesday note to clients. "There is likely some degree of market or real economy stress that could cause Trump to back down from tariff threats. His actions to date make us skeptical of a rapid de-escalation though." .SPX 1Y mountain S & P 500 performance over the past year. According to Schwartz, any future de-escalation from the trade war is more likely to result from negative performance in markets or the economy, and market pressure appears to be "the most plausible path" to a trade resolution since economic data lags real-time news. There is no pattern that suggests Trump's tariff decisions directly consider U.S. stock market performance, however. Notably, Trump campaigned on promises for a soaring stock market and lower inflation. For evidence, look at 2018, when Trump chose to escalate a trade war in the face of one of the worst nonrecessionary years for U.S. stocks in recent decades, Schwartz said. Midterm elections, which tend to be bullish for stocks, also took place that year. "We also see little evidence that Trump timed his tariff announcements to manage equity markets," Schwartz said, noting that the S & P 500 has rallied when the White House de-escalates and plunges during aggressive trade actions. "There are instances where Trump appeared to back down in response to market pressure," such as postponing the date for October tariffs in September 2019 and eventually canceling them, Schwartz added. "However, this is not a consistent response."
