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Trump's trade moves: A $1.25 trillion hit to stocks

Trump's tariffs spark international back
Trump's tariffs spark international back 02:50

President Donald Trump sparked the ire of the U.S.'s closest allies this month by imposing steel and aluminum tariffs, leading Canada, Mexico and the EU to either impose their own counter-tariffs or announce plans to retaliate in kind. In addition, the U.S. Commerce Department is set to announce a detailed list of at least $50 billion in tariffs targeting China on June 15. 

Foreign relations aren't the only thing feeling the brunt of Mr. Trump's protectionist policy shift. Since March, his trade moves -- imposed or threatened -- have cut 4.5 percent from U.S. equity markets, JPMorgan's (JPM) Marko Kolanovic estimated in a note earlier this week. 

"Taking the current market capitalization, this translates into $1.25 trillion of value destruction for US companies," Kolanovic wrote. The analysis tracks trade-related news flow and has a margin of error of plus or minus 1 percent. That total of value destruction equates to two-thirds of the total fiscal stimulus, including the tax cuts, launched under Mr. Trump's administration, Kolanovic estimated. 

"It is a broad consensus across academia, business leaders and market practitioners that trade wars and protectionism are a lose-lose economic proposition," Kolanovic wrote.

A strategy that includes bluffing and threats "can be successful in a two-party negotiation setup, but is more likely to deliver self-defeating results in a complex system such as global trade," Kolanovic wrote. "Think of supply chain disruptions, the uncertainty it introduces in long-term planning, etc."

Reversing Mr. Trump's aggressive trade policies could spark about a 4 percent market rally, while fiscal policy choices, like the tax cuts, seem more permanent. But a policy change has to happen soon, Kolanovic wrote. Damage would become permanent, he wrote, if "this uncertainty hangs over the market for a more extended period of time." 

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