Key Issue: Why should I generally delay my technology trades (purchases) until after the market declines 25-40 percent in 2025? (Probability .89)
What is a trade war ?
A trade war occurs when countries engage in escalating protectionist measures against each other, typically beginning with one nation imposing tariffs or other trade barriers on imports from another country. The targeted nation often retaliates with similar measures, creating a cycle of increasing trade restrictions that disrupt established commercial relationships and supply chains. Trade wars fundamentally represent economic conflicts where governments use trade policy as a weapon to protect domestic industries, address perceived unfair practices, or achieve geopolitical leverage. Historical examples include the Smoot-Hawley tariffs of 1930, which contributed to the Great Depression as global partners responded with their own tariffs, and the 2018-2019 US-China trade conflict that featured multiple rounds of escalating tariffs on hundreds of billions of dollars in goods. While proponents argue trade wars can correct imbalances and protect domestic jobs, economists generally view them as destructive to economic growth by raising consumer prices, disrupting supply chains, and creating business uncertainty. The negative market reactions to trade war announcements reflect investor concerns about reduced corporate earnings, higher input costs, and the potential for broader economic damage from prolonged trade conflicts. Disclosure
Source: Fourester Research
Does the market decline during a trade war ?
Historical market declines during trade wars have shown a wide range of severity, from modest corrections of 2-3% following initial tariff announcements to more substantial drops of 10-15% during prolonged trade conflicts. The 2018-2019 US-China trade war saw the S&P 500 experience multiple declines, with some of the steepest single-day drops occurring immediately after major escalations, though the market generally recovered between announcements. According to the research document, Chinese markets experienced deeper declines once investors recognized the trade war would involve "long-term trade friction," suggesting emerging markets can be more vulnerable to trade disruptions. The steel tariffs of 2002-2003 coincided with a significant market capitalization loss for the S&P 500, representing a multi-month decline during the tariff implementation period. The most extreme case remains the Smoot-Hawley era, where tariffs contributed to a severe market environment during the Great Depression, though isolating the specific trade war impact from broader economic collapse remains challenging. Market impacts vary substantially by sector, with import-dependent industries and companies with high international exposure typically experiencing declines in the higher range of 15-20% during trade conflicts. Recent trade tensions in early 2025 initially caused sharp market drops, but saw quick recoveries as investors assessed whether the threats were negotiating tactics or permanent policy changes, highlighting how market perceptions about a trade war's duration and severity heavily influence the magnitude of decline.
Historical Trade Wars with Import Tax Increases
Based on the information in your document, here's a comprehensive list of notable trade wars that involved increasing taxes on foreign imports:
Major Historical Trade Wars
Smoot-Hawley Tariff Act (1930)
Time Period: 1930-1934
Details: Raised tariffs on over 20,000 imported goods to historically high levels, deepening the Great Depression
Impact: Significant negative stock market effects; contributed to a 25% reduction in global trade volume by 1932
Reciprocal Tariff Bill/Act (1934)
Time Period: 1934-1940s
Details: Authorized the president to negotiate bilateral trade agreements and adjust tariffs
Market Impact: Positive stock market returns of approximately 3.12% and 3.24% on key event dates
Chicken War (1960s)
Time Period: Early-to-mid 1960s
Details: European Common Market countries raised tariffs on imported chicken from the US
Response: US imposed retaliatory tariffs on European goods including trucks, which partially remain in effect today
Steel Tariffs (2002)
Time Period: 2002-2003
Details: US imposed tariffs on imported steel under President George W. Bush
Impact: S&P 500 lost approximately $2 trillion in market cap during the period tariffs were in place
US-China Trade War (First Trump Administration)
Time Period: 2018-2019
Details: Series of escalating tariffs between US and China on hundreds of billions of dollars in goods
Market Impact: Persistent decline in S&P 500 returns after each tariff announcement
Trade War of 2025 (Current/Second Trump Administration)
Time Period: Beginning January 2025
Details: New tariffs on imports from various countries including Mexico, Canada, and potentially others
Initial Actions: Doubled planned tariffs on steel and aluminum products from Canada
Other Notable Trade Conflicts
US-Japan Trade Tensions (1980s-1990s)
Various tariffs and trade restrictions, particularly in the automotive and electronics sectors
US-EU Trade Disputes (Various)
Including agricultural subsidies, aircraft manufacturing (Boeing-Airbus), and steel disputes
US-UK Trade War (Post-Brexit)
Though mentioned indirectly in the document, various tariff threats have existed in this relationship
Global Trade Tensions (2020s)
Broader movement toward protectionist policies across multiple countries, with "my country first" approaches gaining popularity
Each of these trade wars had varying effects on stock markets, economic growth, and international relations, with most showing at least short-term negative impacts on market performance when tariffs were initially announced or implemented.