Trump's Six-Month Tenure and Its Far-Reaching Effects on the U.S. Stock Market
President Donald Trump's administration has introduced a series of economic policies that have significantly shaped the US economy over the past few years. These policies, which include slashing federal budgets, imposing tariffs on global trading partners, and proposing mega tax cuts for the wealthy, have had a mixed impact on various economic indicators.
Stock Market Volatility
When Trump announced sweeping tariffs in April 2025, major stock indexes plunged sharply. The Dow Jones Industrial Average fell nearly 4%, the S&P 500 dropped 4.8%, and the Nasdaq declined nearly 6%. However, when tariffs were delayed for 90 days for negotiations, the market rebounded strongly, with the Dow Jones gaining nearly 8%, the S&P 500 experiencing even larger percentage increases, and the Nasdaq showing a similar recovery [1].
Over time, tariff levels fluctuated, and some increases, such as the doubling of steel and aluminum tariffs, did not significantly move markets, indicating some investor acceptance or uncertainty about the lasting impact [1]. Goldman Sachs noted that the effective US tariff rate rose by about 10 percentage points to 13%, with estimates it could increase further. Corporate earnings starting mid-July 2025 began to reveal how these tariffs might pressure company profits by forcing cost increases and potential margin compression [3].
Inflationary Pressures
Despite rising tariffs, so far, the inflation impact has been relatively contained. Core consumer prices increased less than expected in May 2025, suggesting limited passing on of tariff costs to consumers, though some business surveys indicated lower pass-through rates [3]. The Federal Reserve has been closely watching the inflation data related to tariffs. If tariff-induced inflation effects remain temporary and do not raise long-term inflation expectations, this could allow the Fed to cut interest rates later in 2025 [2].
However, the broader combination of trade wars, tariffs, and fiscal policies has contributed to a decline in the US dollar, which increases import costs and could add inflationary pressures by making consumer goods more expensive [4].
Other Economic Effects
Trump's trade wars and tariff threats have increased economic uncertainty and volatility in global markets. This uncertainty has dampened investment and hiring, particularly for small businesses [4]. Yale’s Budget Lab estimated the tariffs could reduce US GDP by 0.5% in 2025 and cost the average household about $2,500, reflecting a broader drag on economic well-being [4].
Tax cuts implemented during Trump's presidency contributed to fiscal stimulus, supporting corporate earnings and stock prices to some extent, though the interplay with trade-related costs complicated the overall effect [2].
The 'One Big Beautiful Bill Act'
Trump's 'One Big Beautiful Bill Act' proposes several tax cuts, funded by slashing Medicaid and food benefits, boosting defense, immigration enforcement, and border spending. The Act is expected to add $3.4 trillion to the national debt in the next 10 years and potentially leave 10 million more people without health insurance [5].
Financial advisors and economists attribute the real issue to the uncertainty caused by Trump's policies, with Elon Musk, Trump's former 'first buddy', criticizing the Act, stating it is "utterly insane and destructive" and would see Americans grapple with "crushing" debt [6].
In May, the US and China agreed to de-escalate trade tensions for 90 days, and Trump struck trade deals with the UK and Vietnam. However, the tariffs debacle in April caused the US stock market to plummet, with prices for items like cars, airfare, and hotel bookings declining. Inflation increased by 2.7 percent in the year to June, the fastest increase since February, due to Trump's tariffs [7].
As of now, the MSCI USA index has increased around 20 percent, but remains down by six percent since Trump took office. Consumer prices for goods such as coffee, citrus fruit, toys, appliances, and clothing have risen, with prices for items like cars, airfare, and hotel bookings declining [8].
References: 1. Bloomberg 2. Federal Reserve 3. Goldman Sachs 4. Yale Budget Lab 5. Congressional Budget Office 6. CNN Business 7. Bureau of Labor Statistics 8. CNBC
- The 'One Big Beautiful Bill Act', proposed by President Trump, intends to implement several tax cuts, with funding sourced from cuts in Medicaid and food benefits, boosts in defense, immigration enforcement, and border spending.
- Financial experts attribute the stock market volatility to Trump's tariffs, with instances like the April 2025 announcement causing significant declines - including a 4% drop in the Dow Jones Industrial Average and a 6% decline in the Nasdaq.
- The impact of tariffs on inflation has been somewhat contained, as evidenced by core consumer prices increasing less than expected in May 2025, yet the broader combination of trade wars, tariffs, and fiscal policies has contributed to a decline in the US dollar, potentially increasing import costs and inflationary pressures.
- In the realm of politics and general news, events surrounding Trump's economic policies have had a tangible effect on various sectors, including finance, businesses, and everyday consumers, causing both stock market volatility and pressure on company profits.
