How the stock market could collapse from Trump's tariffs

Although May has been a tremendously beneficial month for stocks in general, discussions about tariffs and trade wars have not yet ceased, and if they continue, they could threaten the recovery of the stock market.

A man reading stock listings.

Trump's waging of tariffs has undoubtedly cooled down since its peak in April. A significant change from the previously levied 10% flat tariff on all goods imported from China, the president has toned down his divisive and relentless rhetoric on tariffing foreign trading partners; instead, the president has opened up trade negotiations to lower "retaliatory" tariffs from foreign entities wanting to provoke reductions to the American tariff, as well as combating ancient trade disparities like deemed unfair trade agreements. Especially with Chinese leader Xi Jinping, these negotiations offered a glimmer of hope throughout May as the possibility of tariffs not being levied at all opened up. This contributed to the massive stock resurgence in May.

However, despite all of this growth, the talk of tariffs and trade wars will not yet cease. The talks between China and the United States, although a good first step, has remained inconclusive in generating a substantial bilaterial trade agreement to lower tariff rates on both sides. Rather, President Xi even denounced the possibility of doing so, citing Trump's previously unabashed attitude towards demanding tariffs on his country. Possibly out of setting a precedent against the United States' global influence, China's resilience against falling for Trump's trade agreements has threatened the president's recent laid back trade policy. More nations might follow suit and resist reducing their retaliatory tariff rates on the United States, keeping trade wars going for much longer. And Trump, of course, will not back off to these foreign entities until they agree to his demands, at least it appears that he will do so.

If this trend continued, the stock market may be in for its worst performance in years in the months of June, July, and beyond. Stalled trade negotiations would mean consistently high rates impacting the trade of essential goods that initially kept prices low for consumers and corporate importers. Instead, for both the exporter and the importer, financial risk may be more prevalent as cash flow reduces amongst private entities. Investors might want to go out with the market after witnessing such circumstances; with less cash flow, the future prospects of private equity dwindle, meaning less growth opportunity and subsequently less returns for investors. This may produce the biggest selloff, in other words a collapse, of recent history.

So, it might seem positive now, but investors must keep a vigilant eye on markets and the news as the world continues to persevere through such volatile economic struggles.