Feeling Tariffied Yet? The New York Stock Exchange Is.

It seems like only yesterday that I wrote …

Sad are the market maniacs and mavens who thought they’d take one last ride up the big hill. Sadder still are they likely to be tomorrow coming down it to find the tracks are out right after the top…. The ultimate direction, however, is clearly down and then down some more and then down a lot more….

First, you will see the direct recoil in markets from today’s announcement. Then you will see various jolts from the announcements of other nations as their retaliation arrives in spurts. Then you’ll see what Trump does in retaliation against all of that, one nation at a time, after each nation levies its best retaliation, as Trump has already promised to retaliate against retaliation. Then you will feel the deeper inner tremblings—the kind that make your diaphragm quiver—that come from all the economic data that starts to come in one piece at a time, creating its own impacts just by the knowledge it imparts as each new piece of falling data arrives.

And that’s because it was yesterday … and only the day before that, I wrote …

So, tomorrow is “Liberation Day,” Tariff-Day, which is the day your money will start to be liberated from your wallet.

So, here we are. Two small steps for mankind, and we have landed the Russell 2000 officially into a bear market today, down 21% from its last summit. That makes it the first index to enter the full-crash zone. The Russell hit its last high at the end of the brief Trump rally that followed the November elections, which Trump, himself snuffed out with his tariffs.

So, how bad was it?

The Dow crashed a massive 1600 points, and the Nasdaq crashed a far worse 1050 because for the Nasdaq that’s a bigger move. That was just a whisper shy of a 6% plunge today alone. Both the Nasdaq and the S&P put in their worst single day since the big Covidcrash when the world shut down nearly all economies.

All the major indices have fully wiped out the gains of the fickle Trump rally that should never have happened in the first place, given how clear Trump was about a major tariff war being the economic centerpiece of his administration. Today, stock investors finally stopped drinking the orange Kool-Aid and just laid down to die.

The big Apple suffered its worst day in five years, going back again to that demarcation line between the formerly bad stuff by the measures of decades past and the new bad stuff on steroids that has plagued us since Covid and the start of 1984, the novel. Tech stocks, overall, led the plunge off the end of the roller coaster and over the Nasdaq abyss.

Some readers may remember me writing articles months ago that challenged the parroted wisdom of the stock market that claimed AI stocks could not, would not crumble because AI was the rage of the future. Ironically, those same articles would point out how this time was different than the dot-com bust, and I would have to point out, “No, this time could not possibly be more exactly like the dot-com bust.” The market mavens never learn. In the end, the bulls love to stampede over the obvious cliff, and you cannot yell and wave your arms enough to ward them off. So, oh well.

The incendiary inflation barbecue

That, of course, is no different than how I had to write, “Yes, tariffs will fuel inflation,” every time Team Trump opened their collective mouths to assure us tariffs would not while the Fox trotters parroted the party line of the audience they seek to placate and please and pander to. It’s a bull barbecue at the bottom of the cliff today where inflation has already fueled a hot bed of coals for the bulls to land in.

Morgan Stanley said Apple will likely have to raise its already astronomical prices as much as 17% because it never learned its lesson to pull fully out of China, other than to park some production in Vietnam and India, and Vietnam got hit extra hard, as I warned might be the case when the new tariffs came out. The driving factor, I predicted, would not just be the cost of tariffs, but the shortages they would create due to supply-chain breakage; and that news was also part of what brought Apple stocks down more than 9% today after all their previous days of falling.

So, here we are:

In the past few years, Apple has sold Americans iPhones made in India, AirPods from Vietnam and Mac desktops assembled in Malaysia. It was part of a strategy by Apple to diversify its manufacturing from China….

It seemed like a solid strategy. Until President Donald Trump’s “reciprocal tariffs” this week hit those countries, too.

Now, Apple is leading the decline among technology stocks on Thursday after the company’s secondary production locations were all included in the round of tariffs announced by Trump on Wednesday….

“When you look at the reciprocal tariff to countries like markets like Vietnam, India, and Thailand, where Apple diversified its supply chain to, there’s nowhere to escape,” Morgan Stanley analyst Erik Woodring told CNBC’s “Closing Bell.”

To offset the price of the tariffs, Apple may have to raise prices across its product lines by 17% to 18% in the U.S., Woodring estimates. But there’s still a lot of uncertainty about what Apple will do and how China might retaliate against the United States, Woodring said.

“In this type of environment, you have to think worst-case scenario,” he said. “It seems like each side in this geopolitical scenario is kind of digging in.”

Apple warned investors that tariffs could hurt its business, prompt it to increase its prices and even force it to stop offering certain products altogether.

Apple’s official list of suppliers – representing 98% of its spending on materials, manufacturing, and assembly – is heavily weighted to countries disproportionately affected by Trump tariffs.

So, the supply chains are, again, breaking badly, and that’s because moving those cumbersome supply chains entirely to the US to dodge the tariffs is incredibly costly and may easily take longer to do than the amount of time the tariffs will last, making it a tough decision as to whether it is better to wait out the Trump tariffs:

“The reality is it would take 3 years and $30 billion dollars in our estimation to move even 10% of its supply chain from Asia to the US with major disruption in the process,” Wedbush analyst Dan Ives wrote in a Thursday note.

Maybe Apple can promise to move some, and get an indulgence from the Don for trying.

Other major manufacturers today announced huge price increases as a decision that has already been made because of the tariffs. Volkswagen said it will add the new import fees to the prices of its vehicles; and, in terms of supply, it will quit supplying some less profitable lines to its US dealers.

Trump’s tariffs, which took effect Thursday, mark a “fundamental turning point in trade policy,” said Hildegard Müller, head of Germany’s auto lobby VDA. She warned the move would create “only losers,” including U.S. consumers facing “rising inflation and a reduced choice of products….”

Volkswagen, which builds cars in Tennessee, still imports key models from Europe and Mexico….

Ferrari will hike U.S. prices up to 10%. British automakers warned Americans will likely pay more for iconic brands like Bentley and Mini.

OK, the Ferraris and Bentleys are not likely to impact many of us, but the Mini and the VW will hit a few; so, yes, already—the very day after the tariffs were announced—some manufacturers have decided to pass along the high cost of tariffs … or, at least, a good part of the cost.

“These tariff costs cannot be absorbed by manufacturers,” said Mike Hawes of the UK’s auto trade lobby, “thus hitting U.S. consumers who may face additional costs and a reduced choice of iconic British brands.”

So, no Mexico is not going to pay for it. US taxpayers will, in large, pay for these new MUCH higher taxes. It’s essentially a federal sales tax embedded in the price of the goods Americans will be buying. And don’t fool yourself into thinking the tariffs will only raise the prices of the goods you buy. That would never have been the case:

“People might think, ‘Oh, tariffs can only affect the goods that I buy. It can’t affect the services,’” said Hillary Stein, an economist at the Boston Fed. “Those hospitals are buying inputs that might be, for example, ... medical equipment that comes from abroad.”

The people who provide your services will see all the goods they buy rise, so they will have to raise their prices to cover their own rising cost inputs. The White House has, of course, sworn otherwise over and over. You would do well not to listen to them, as I have been warning. You WILL pay for the tariffs in both goods and services. In the very least, you will pay for a good deal of them, as some companies will manage to talk some of their suppliers into dropping their price some to help compensate for the tariffs. That will be the news the Trump administration tells, but I’ve always said that effort to get the exporters from other nations to fully compensate in their pricing would, as it did last time, fall short of covering the full hit. We already see that happening today.

Even for those companies that manage to reshore their production to the US, you’ll still see the cost of their goods rise because of these tariffs:

“There is a reason why companies went outside of the U.S.,” said Gregor Hirt, chief investment officer at Allianz Global Investors. “Most of the time it was because it was cheaper and more productive.”

The cost of making those goods in the US will be higher. That’s why they were offshored in the first place, and there will be huge costs in moving production that will have to be priced in somehow.

There will be losers and then there will be Losers

So far, the US is emerging as the biggest loser in the first inning of Trump Tariff Wars 2.0 because, while all nations have seen their stocks tumble, US stocks have fallen the hardest. But it’s not just US stocks that are falling. US business is declining as tariffied consumers start tightening their belts:

"Even before tariffs were actually set in stone, we heard from companies like Walmart and Delta, for example, ... that they were already seeing a slowdown as the tariff talk just started so we can only imagine what they are going to say now," he said.

Again, this is just the first inning. There is a lot more to come. The days ahead will be saturated with news about companies raising prices to either offset tariff costs, solve supply-chain boondoggles or cover the cost of moving all manufacturing to the US and the higher cost of labor over here.

It’s not going away soon because …

Trump seems unfazed. Asked about tumbling stocks on Thursday as he boarded Air Force One to attend a golf dinner in Miami — as the Dow Jones was down 1,400 points — Trump said: “I think it is going very well.”

Splendid. The longer people hold on to the idea that this will ultimately empower America, rather than take it to its knees, the worse and more irreparable the damage will be.

'It was an operation. [It is] ike when a patient gets operated on and it's a big thing. I said this would exactly be the way it is,' he added, claiming that 'six or seven trillion' dollars would be coming into US….

'The markets are going to boom... the country is going to boom and the rest of the world wants to see if there's any way they can make a deal,' the president continued.

That, however, assumes nothing breaks in the collapse, and that seems highly unlikely. As I noted earlier this week, companies like Johnsons’ display case company will likely go out of business because he already found he couldn’t get the cabinets he sells made in the US at any price that customers would accept; so, when China was hit by Trump with tariffs a few years ago, which were held in place throughout the Biden Administration, Johnson moved production to Vietnam. Now Vietnam is even more expensive than China, and all other options have been cut off.

We won’t know until we see how many businesses close how bad the permanent damage is going to be, and that could take a few years since Trump doesn’t sound like he’s backing off this time (as I said would be unlikely because, if he did that a third time, he’d lose face and lose the confidence of his own supporters). Canada isn’t about to cave in because the cost for them is, apparently, giving up their sovereignty entirely. Europe is talking about how to fight Trump by teaming up cooperatively with Canada and other nations in their retaliation to make things hurt enough to bring the US down if that is what it takes.

It may take awhile for your retirement to recover, too. Trillions of dollars have been wiped off the value of US stocks. Hopefully, you did what you could to, in the very least, move all your money out of stocks. Gold, of course, is not an easy option in retirement funds unless you migrate your funds to IRAs and risk taking the tax hit now, since you don’t pay taxes on that money when you take it out of the IRA as you do with a 401k and never paid taxes when you put it into the 401k.

Even the almighty dollar, which the nation needs strong in order to cover its debts, has been rapidly weakening under the threat of tariffs, and weakened a lot more today. The Trump Tariff Wars may do to King Dollar what the BRICS nations have never even come close to doing. This actually could cause the dollar to collapse. As I said in my earlier predictions, nations that don’t trade with the US don’t need dollars. Credit agencies will see that coming and may soon start lining up for the next opportunity to downgrade the US credit rating.

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