June 1st marked the day President Trump’s 50 percent tariffs on European goods officially kicked in. Many retail traders expected the tariffs to be delayed or rolled back and kept buying stocks. That assumption misses the bigger picture.
The European Union is in a strong position. With closer ties to China and a need to prove itself after Brexit, the EU has no intention of backing down. This tariff move pushes Europe and China even closer. It ramps up pressure on the U.S. dollar and the mounting national debt. The dollar’s recent weakness is no coincidence. Foreign demand for Treasury bonds has cooled while the debt continues to climb to historic levels.
Looking back, Trump closely watched the stock market during his first term, linking his success to its performance. Sharp sell-offs between five and ten percent often led to policy changes or public reassurances aimed at calming investors. If the S&P 500 falls below 5200, expect intense pressure to ease these tariffs. A drop under 5000, especially with rising volatility and Treasury instability, would make a rollback likely.
For now, the tariffs stand firm. The real question is how long markets can ignore the ripple effects of this escalating trade conflict. Sustained losses will force policy shifts.