The markets don’t know what to make of Trump’s tariffs. Are they temporary or permanent? Are they leverage to get a better deal or a device to create an economy based on import substitution? Will they result in inflation or a recession?
Given Trump’s capriciousness and desire to show he’s the boss, there are no single simple answers to most of these questions. As to the last, however, you don’t have to choose. The tariffs will result in price increases, lower consumer confidence, and a reduction in confidence. In short, if they remain in place, we will be looking at stagflation.