Markets have seen this movie before with Trump. The script feels familiar—threatening massive tariffs, watching stocks tumble, then eventually cutting some deal that lets everyone save face. His latest performance—promising 50% tariffs on European imports starting June 1st—has all the hallmarks of his previous trade dramas, just with different characters and higher stakes.
I've watched traders react to Trump's trade announcements since 2017. First comes the panic selling. Then the nervous wait-and-see period. Finally, the relief rally when the actual policy ends up watered down from the initial threat. It's practically a market ritual at this point.
But this time feels... different.
For one thing, we're deep into election season. Trump needs talking points for the campaign trail, and "getting tough on foreign competitors" plays well with his base. The EU isn't China, though. These are America's allies, and they've proven remarkably adept at political retaliation.
Remember when Trump hit Europe with steel tariffs back in 2018? The EU didn't just strike back randomly—they targeted Kentucky bourbon (hello, Mitch McConnell's home state) and Wisconsin-made Harleys (Paul Ryan's backyard). They know exactly which pressure points hurt American politicians most.
The strange part? Markets have barely flinched this time around. European luxury stocks took a modest hit—LVMH and Kering shareholders weren't thrilled—but nothing like the volatility spasms we saw during previous trade threats. It's as if investors have developed antibodies to Trump's trade rhetoric.
That could be dangerous thinking.
See, the boy who cried wolf eventually faced an actual wolf. Just because previous tariff threats ended with compromises doesn't guarantee this one will. The real risk isn't necessarily these specific tariffs happening exactly as threatened (they probably won't), but the broader shift toward using trade as a political weapon rather than an economic tool.
I've developed what I call the "Visible Pain vs. Diffuse Benefit" theory for understanding trade politics. Tariffs create concentrated, camera-ready "winners"—steel workers cheering a presidential visit to their "saved" factory makes great campaign footage. Meanwhile, the costs—slightly higher prices for virtually everything, disrupted supply chains, retaliatory tariffs—are spread thinly across the entire economy. No one holds a protest rally because their washing machine costs $50 more.
For investors trying to navigate this mess, the obvious plays are European luxury exporters with heavy U.S. exposure. But the second-order effects get more interesting. European automakers with U.S. manufacturing facilities (think BMW in South Carolina) might actually gain competitive advantage against pure importers. The winners and losers won't align neatly with simple country-of-origin labels.
Look, markets have already been pricing in some degree of deglobalization for years. COVID exposed the fragility of just-in-time global supply chains. The Russia-Ukraine war accelerated the trend. Companies have been quietly restructuring their operations for a more fragmented global economy well before this latest tariff threat.
The June 1st deadline leaves plenty of time for the usual cycle of negotiations, threats, concessions, and eventual compromise. We'll see dramatic headlines for weeks, followed by some face-saving arrangement both sides can spin as victory. That's the theatrical aspect of trade politics that market veterans have learned to discount.
But the deeper question—and the one keeping thoughtful investors up at night—is whether we're witnessing the permanent weaponization of trade policy. Are we moving toward a world where economic relationships are subordinated to political imperatives regardless of which party holds power?
That's a much harder forecast to make... and a much more consequential one for long-term investors.
