CNBC’s Jim Cramer recently offered insights into the potential market impact of President-elect Donald Trump’s proposed tariffs, drawing on analysis from Jessica Inskip of StockBrokers.com. Cramer’s analysis suggests that while the **threat of tariffs** can cause market anxieties, their **actual impact** might be significantly lessened under a bullish market, and that the **Federal Reserve’s actions** play a crucial role in mitigating negative effects. This nuanced assessment challenges the conventional wisdom surrounding trade wars and their consequences, offering a perspective that considers both the political rhetoric and the underlying economic conditions.
Key Takeaways: The Unexpected Truth About Tariffs
- Market Reaction to Tariff Threats vs. Implementation: The fear of tariffs may not necessarily translate into immediate market crashes. Past data suggests that the **initial announcement** of tariffs had only a **limited effect**, compared to the **actual imposition**, which caused sharper, but ultimately temporary, declines.
- The Crucial Role of the Federal Reserve: The **Federal Reserve’s monetary policy** is a significant factor in determining the market’s resilience to trade shocks. When the Fed adjusted its interest rate policies, the market quickly recovered from tariff-induced sell-offs.
- Bullish vs. Bearish Markets: The analysis emphasizes the market’s inherent condition – a **bullish market** is significantly better positioned to weather the impact of tariffs than a **bearish market**. The existing market trend is shown to be the more substantial element influencing the effects of protectionist trade policies.
- Trump’s Past Tariffs and Their Impact: Cramer references Trump’s initial tariffs on goods like steel, aluminum, and solar panels, highlighting that **while they caused short-term market dips**, these losses were later recouped. This historical data underlies the central argument: the current market outlook is a better predictor of impact than the tariffs themselves.
Analyzing the Impact of Tariffs: A Deeper Dive
Cramer’s analysis, based largely on Inskip’s research, meticulously examined the performance of the S&P 500 between mid-2017 and 2020. This period encompassed the implementation of Trump’s earlier tariff measures. The charts revealed that the **market’s response** to the initial announcements of tariffs was relatively subdued. “The charts… suggest that tariffs had little impact on the market until they actually materialized during Trump’s first term — all the saber-rattling beforehand didn’t do much damage,” Cramer stated, highlighting the discrepancy between announced policy and market impact.
The Significance of the Federal Reserve’s Role
However, the story doesn’t end with the implementation of the tariffs themselves. The data demonstrates a significant post-tariff response. The markets did experience sell-offs when the tariffs were put into place, reflecting concerns about a potential **global trade war**. This is pivotal to understanding the complexity of the relationship between tariffs and market fluctuations. “Even when the tariffs actually hit and the market sold off, we eventually erased those losses the moment that the Fed stopped raising interest rates,” Cramer emphasized. This observation underscores the role of the Federal Reserve’s monetary policy in influencing the market’s ability to withstand external shocks like those created by trade wars.
Comparing Trump’s Past & Present Tariff Policies
While acknowledging that President-elect Trump’s current proposed tariffs are more aggressive than those enacted during his first term, Cramer argues that Inskip’s analysis provides valuable insight irrespective of the scale of the latest tariffs. The key takeaway is not about the volume or type but about the context of the wider economic climate. The premise is if a bullish trading cycle persists, a trade war, while still a threat, might not have as immediate or catastrophic an impact as previously assumed.
The Market’s Condition: The Unsung Hero
Inskip’s analysis, as interpreted by Cramer, introduces a crucial variable: the overall market trend. The conclusion that emerges is that the pre-existing market conditions, being either bullish or bearish, play an outsized role in determining the market reaction to trade disputes. “As Inskip sees it, something like a trade war can certainly hurt us badly when the market’s already trending bearishly,” Cramer stated. This highlights that the market’s resilience—or lack thereof—is greatly affected by its predisposition at the time of an external shock. A strong, upwardly trending market (bullish) is more likely to weather the storm of tariffs than a weak, downwardly trending market (bearish).
The Bullish Cycle and its Importance
The period under analysis in Inskip’s study also highlights how a sustained bullish cycle – one in which overall investment is positive and increasing – acted as a buffer against the negative effects of the tariffs. The S&P 500 entered a bullish period upon the Fed’s change in policy and maintained it until the pandemic, showcasing the market’s significant ability to absorb shocks within a positively trending environment. Cramer concludes, “But if we’ve got a bullish trading cycle like we do right now, then she’s not worried as long as we can maintain that cycle.” The statement underscores that maintaining this bullish momentum is key to minimizing the damage potential trade wars could pose.
Conclusion: A More Nuanced Understanding of Trade Wars
Cramer’s interpretation of Inskip’s findings provides a more complex and nuanced understanding of the relationship between tariffs and market performance. It moves beyond a simplistic cause-and-effect relationship, introducing variables such as Federal Reserve policy and the prevalent market trend. It’s a crucial point, shifting the focus from the inherent “negativity” of tariffs to the dynamic interplay between tariffs and other macroeconomic factors. This understanding suggests the need for more sophisticated analysis in assessing the potential impact of future trade policies, taking into consideration the broader economic context and the influence of central banks. While the risk of a trade war disrupting the market remains real, the analysis indicates that the market’s intrinsic condition and monetary policy action can play a decisive role in mitigating the negative effects.
