FX.co ★ Can Trump’s trade war push S&P 500 down?

According to Business Insider, the US stock market surged rapidly following Donald Trump’s victory in the presidential election, reaching new all-time highs. Does this mean that investors can rely on a steady rally?

However, whereas Trump's win has created bullish opportunities for the stock market, experts advise investors to stay vigilant. Indeed, Wall Street is becoming increasingly vulnerable to other risks, particularly the looming introduction of lofty import tariffs and an escalation of the trade war with China.

John Higgins, Chief Markets Economist at Capital Economics, believes that the greatest risk to the S&P 500 index comes from China’s current policies. Analysts are particularly concerned about how Chinese authorities might respond to another trade conflict with Trump. The biggest risk to the S&P 500, especially considering the bubble fueled by the AI hype, could be China’s retaliation against US tech companies operating in its territory, Higgins says.

During his campaign, Trump proposed imposing 60% tariffs on all goods imported from China and 10% tariffs on all other imports. If the 60% tariffs on Chinese goods are implemented, China is unlikely to remain silent and is expected to retaliate aggressively. This could take its toll on major American companies such as Apple and Tesla, which manufacture and sell their products in China. Nonetheless, Higgins considers this scenario unlikely, as escalating the trade war would also harm China’s economy, which is already facing challenges. Retaliatory measures would undermine China’s image as a responsible superpower, so Beijing will hardly take such steps, Higgins explains.

Instead, Beijing might adopt more nuanced retaliatory measures, such as restricting the supply of rare earth metals and older-generation semiconductor chips, Higgins adds. This approach would allow China to save face while delivering a fair response to Trump’s second round of tariffs.