$2 trillion: That's what trade wars could cost the US, but does Trump care?

Maybe Trade Wars Are Bad and Easy to Lose
 

An old Wall Street saw says “Buy on the sound of cannons, sell on the sound of trumpets,” meaning stock traders see wars as buying opportunities. The story may be different if those cannons are aimed at their wallets, however.

Until recently, President Donald Trump’s waving of the trade-war stick at China and various allies has generally elicited stock-market yawns. But Trump's new tariffs on Chinese goods today may have been a hot pot of coffee. China fired back with massive tariffs of its own, and Trump has threatened to retaliate for China's retaliation. 

Suddenly the trade wars seem to matter a bit more to stocks; the S&P 500 fell about one percent before recovering at the end of the day. And trade wars matter in some quarters more than others. Qualcomm Inc.’s pending merger with NXP Semiconductors NV is suddenly complicated, notes Alex Webb. China’s government is telling big U.S. companies doing business in China to "buckle up" should Trump follow through on his anti-trade vows.


 

Trump’s former economic adviser, “Globalist” Gary Cohn, has said trade wars could cost the US economy $2 trillion – wiping out the Trump administration’s claimed tax-cut boost. That may overstate the damage, writes Stephen Gandel – but not by much. Comparing the market valuations of big-company stocks against those of small companies – which you’d expect would feel a trade war less – Steve suggests trade agita might already have shaved $1 trillion from big-company values.

And the way companies have spent their tax cuts – on buybacks and mergers rather than investment and hiring – just so happens to be what a company would do if it was worried a trade war might blow up in its face, notes David Ader.

Trump seems to pay attention to the stock market, and too much howling there could make him cool his trade cannons. But maybe it’s better to hide from them now and sound the trumpets later.