U.S. Investors Say Buy, Buy, Buy to Stocks, and Bye, Bye, Bye to Trade War Fears

U.S. equity markets are trading higher on Monday, much to the surprise of bearish traders who were betting on a global trade war to disrupt the rally and perhaps fuel a mild downdraft.

The reasons for their trading strategy were likely the Trump Administration’s enforcement of tariffs on steel and aluminum from a few trading partners, the retaliation by these entities on U.S. goods, and the stern rebuke from the G7.

Based on the solid rally in the stock market, I think investors are saying the countries involved don’t have the fire power to retaliate strong enough to disrupt the U.S. economy or dramatically effect corporate earnings. Since the entire rally has been driven by economic growth and strong earnings, any major event that gets in the way of these two factors would’ve surely put the market under pressure today.

Tariff Recap

Following the timeline from last week, the White House slapped steel and aluminum tariffs on Canada, Mexico and the European Union.

The major U.S. trading partners wasted little time Thursday striking back against the move.

Canada, the second-largest trade partner, behind China, responded with “dollar-for-dollar” tariffs against U.S. steel and aluminum exports. Canadian Prime Minister Justin Trudeau called the Trump administration’s tariffs “total unacceptable.”

Mexico, the third-largest U.S. trade partner, said it would penalize U.S. imports including pork bellies, apples, grapes, cheeses and flat steel.

The European Union included jewelry products, Bourbon whiskey, automotive glass, telecom equipment and a wide range of personal care products.

Several U.S. industries are going to take a hit from the tariffs imposed by Canada, Mexico and the EU, but going through the list, I don’t think there is anything there that will have the same impact on the economy as aluminum and steel. Of course, that’s open to argument.

The Trump administration gave the parties plenty of time to negotiate their way out of the tariffs, but apparently they didn’t take the matter serious enough to come to the negotiation table with enough to sway the U.S. from making the move.

U.S. Doesn’t Fear G-7 Rebuke

Over the week-end, it was reported that the United States was singled out by some of its closest allies Saturday over the imposition of tariffs they warn will undermine open trade and weaken confidence in the global economy. The G-7 ministers urged the U.S. to abandon the tariffs ahead of the leaders’ summit before the move causes deeper divisions within the G-7.

The rally in the stock market also proves that investors don’t believe the G-7 has the power to influence the U.S. decision to impose tariffs despite its expressed ‘concern and disappointment’.

Investors know that the G-7 has a bad track record when it comes to finding solutions to major issues. Over the past year, the G-7 blamed the U.S. for failure to reach climate change agreement but did nothing about it. The G-7 failed to agree on sanctions against Russia in the wake of a deadly attack in Syria and the G-7 failed to provide a humane response to the global displacement crisis.

At this time, the U.S. is calling the shots as far as trade is concerned and U.S. investors don’t see any reason to abandon the bull market. However, things could change if a trade war begins with China.