Time to “sell the bounce”? Many stock investors think so after US President Donald Trump’s April 2 "Liberation Day" tariff announcement imploded global stocks, followed by big gains after his “pause” days later.
Who knows what awaits? Maybe not even Mr Trump. Does exiting stocks before the next big, scary tariff news feel wise to you? That would be a mistake. Here is why.
Firstly, yes, the MSCI All-Country World Index (ACWI) rose 11.2 per cent (as of April 28), from April 8's low. But if you need equity-like returns to finance long-term goals, exiting stocks is the biggest risk you can take. If wrong, sidestepping returns that otherwise compound is tough – maybe impossible – to recover from without huge, potentially devastating risks.
Exiting stocks now ignores some clear investing lessons from April’s absurdity: trying to time markets based on widely known factors is folly. So is selling amid panic. Mr Trump’s tariffs are bad – especially for America itself, one reason why non-US stocks are trouncing America’s in 2025. But tariff terror is excessive, priming upside. Why?
First, let's recap. US and global stocks tumbled by 12.2 per cent and by 11.1 per cent, respectively, after the big "Liberation Day" reveal. But why, since stocks pre-price all common knowledge – and Mr Trump’s tariff fixation was well known? The answer is that all previously imposed or threatened tariffs were too tiny to roil stocks – totally just 0.25 per cent of global gross domestic product.
The "Liberation Day" tariffs were far bigger, broader and more bizarrely built than anyone foresaw – underpinned by mind-numbing economic misperceptions and moronic maths. Mr Trump’s 10 per cent universal levies and far steeper so-called reciprocal tariffs spiked uncertainty. Stocks, as they were plummeting, priced the shock fast.
Stocks can’t possibly anticipate such large, nonsense-born surprises. Take Mr Trump’s paused, misnamed “reciprocal” tariffs. They have no links to what other nations charge the US. None. The EU’s average tariff is 2.7 per cent, according to the World Trade Organisation. Mr Trump hit it with 20 per cent. Vietnam averages 5.1 per cent tariffs. Mr Trump slapped on 46 per cent duties.
Do you think this was about non-tariff barriers? No. Mr Trump’s advisers didn’t even try tabulating those. Rather, bafflingly, his tariffs stem mathematically from America’s trade deficit with each nation, assuming they approximate other countries “cheating”. That is illogically odd, given the 10 per cent universal tariffs also apply to nations America has trade surpluses with, including the UAE.
Trade balances are mere accounting measures – never, ever predictors of economic success. Countries run deficits for many reasons, including faster relative growth or wealth, letting them buy more abroad than they export.
Consider neighbours Germany and France, each other’s largest trade partners. Since 2008, Germany ran huge annual trade surpluses. France ran big trade deficits, yet its economy overall did slightly better. Or Russia running big trade surpluses steadily while America ran deficits since the 1970s. Which economy is healthier?
I’m not saying surpluses are inherently bad – they aren’t. Simply, trade balances, themselves, mean nothing to future growth or wealth. They aren’t predictive or causal.
Then, came April 9 – surprise 2.0. Mr Trump paused “reciprocal” tariffs for 90 days on every country but China, which he hit harder. While China retaliated, Mr Trump claims 75 other nations want “deals", justifying his pause. So you logically wonder, what comes next?
While nobody can know Mr Trump’s next move, one bullish reality will surprise most: even if all tariffs return, the effect will be smaller than feared.
Why? Firstly, un-collectability. No one even thinks of how US tariffs are collected. US Customs and Border Protection’s (CBP) tariff collection unit is understaffed, with only 2,500 employees policing hundreds of locations. Hiring and training take ages. Its technology is outdated and untested at the volumes it would encounter. Its Swiss-cheese-like processes are quite easily gameable. Hence, the CBP’s receipts through late April far undershoot Mr Trump’s forecasts – by fully 90 per cent. That gap will sustain as firms perfect “skirting” techniques.
Universal tariffs exceed the “national emergency” grounds Mr Trump used to enact them without prior Congressional legislation. Lawsuits arrived on cue, which likely mute tariff’s feared effects significantly.
We could we get a flurry of deals, lowering trade barriers significantly – a nice potential upside. Meanwhile, sharp retaliation beyond China’s actions could come, but is unlikely. Even China’s tariffs faded somewhat, with exemptions granted for imports America can’t produce or source elsewhere.
So, how should investors proceed? Firstly, ask whether you possess unheralded, unpriced information about the future direction of tariffs. Stocks pre-price widely known information. Commonly discussed facts and opinions have little power. Do you know anything about Mr Trump and his tariffs that millions of others don’t?
In the absence of such unpriced knowledge, there is no basis for trading on tariffs. This acts much more like a classic market correction than a bear market’s beginning. So, patience is your best bet now.
