On Thursday, March 1, President Donald Trump announced plans to impose tariffs of 25 percent on foreign-made steel and 10 percent on imported aluminum—and it didn’t exactly sit well with investors. In response, the Dow Jones industrial average or “Dow” (an index that tracks 30 large U.S. stocks) dropped around 586 points, or 2 percent, and ended the day down 420 points.
As stock traders—and countries who sell aluminum and steel to the U.S.—tried to figure out the implications of his announcement, stock prices continued to bounce around Friday. The Dow fell nearly 400 points before closing just 71 points down, or .29 percent.
Hold on... What’s a tariff?
It’s a tax specifically on imported goods and services, making them more expensive.
Why would anyone want that?
Often, it’s to discourage buying stuff from abroad and to protect domestic companies from foreign competition. That’s the president’s goal in imposing these tariffs, he says—to encourage production and use of U.S.-made steel and aluminum in hopes of boosting their sales and securing related jobs—as well as to punish what he deems unfair treatment of the U.S. by other countries when it comes to trade policy.
Why wouldn’t the stock market like that?
Generally, the market doesn’t respond well to uncertainty or political turmoil—and global response hasn’t been very positive. The European Union, Germany, Canada and other nations have threatened retaliation against the U.S., and even the World Trade Organization voiced concern.
Plus, nobody likes higher costs. Plenty of U.S. companies use foreign-made steel and aluminum, so raising prices on those materials means they may end up passing the cost on to us. That means we could pay more for everything from beer, LaCroix and other (aluminum) canned goods to cars and household appliances.
So what should I do?
Sit tight. This was just an initial announcement; what happens next is anyone’s guess. So don’t worry about boosting your beer budget yet, and certainly don’t start moving investments around. Remember day-to-day market movements are normal. Just stay focused on your own long-term agenda, and stick with the investing strategy you’ve laid out to reach your goals.
March 2, 2018