President Donald Trump’s tariffs are fueling stock market volatility, with the S&P 500 down nearly 9% from its February 19 peak as inflation and growth concerns mount.
While Trump has insisted he is not concerned with how markets perform as he advances his protectionist agenda, that stance may soon be tested.
The president has acknowledged that markets may experience turbulence as he imposes tariffs on Canada, Mexico, China, and the European Union.
But the question remains: at what point do the losses become too severe for him to ignore?
Marko Papic, chief strategist at BCA Research, believes Trump’s breaking point could be near. He argues that a 15% to 20% drop in the S&P 500 would force the president to reconsider his trade war. “
For sure he’s going to care about the stock market because he’s going to lose political capital if the economy goes into recession or if households feel poor,” Papic said. “There’s absolutely no way he’s impervious to that.”
Desmond Lachman, a senior fellow at the conservative-leaning American Enterprise Institute and a former International Monetary Fund official, suggests that the pace and severity of the sell-off matter more than the overall decline.
I would think it’s got more to do with the speed and disorderliness of the movement,” Lachman said. “
What’s occurred over the last couple of weeks, if that continues at this kind of pace, he’ll have to cave.”
With a Republican-controlled Congress in which Trump threatens to unseat members who don’t align with him, and a 6-3 conservative majority in the Supreme Court, financial markets may be the last significant check on Trump’s power, Lachman noted. “
They don’t care what he thinks, they’ll just dump the stocks,” he said. “That’s really the only check we’ve now got on ridiculous policies.”
“The stock market’s going to act like the bond market used to, with the bond vigilantes coming in and punishing governments running big budget deficits,” Lachman continued. “At some point, he’s going to be forced to cave.”
Papic added that continued financial and economic instability could create new challenges to Trump’s ability to impose his policies.
While Republican lawmakers have largely avoided opposing the president’s agenda, a weakening economy and market turmoil could incentivize dissent. “
A weakened economy and reeling stock market could provide an incentive for senators or representatives to dissent and ‘make a name for themselves,’” he said.
In such a scenario, Papic argued, the political landscape could shift dramatically in a matter of months. “If they mess around and find out, he could be a lame duck in three months,” Papic said. “
We’ll be writing those takes much faster than anyone thought because he’s got a very narrow majority in the House.
