Trade war and stock market chaos: What's behind Trump's 'strategy'?

The Nasdaq saw its biggest one-day drop since 2022 on Monday, raising fears of a possible recession and criticism of President Donald Trump's tariff strategy. The outcome of this tariff war depends on many factors and, above all, on what the president's ultimate goal is.

For some, Trump is simply using tariffs as a strategy to achieve political objectives, such as decreasing trafficking across the border and illegal immigration. Others believe the goal is also economic and is about imposing reciprocal tariffs to protect American products. There are those who believe it is the consequence of a protectionist vision driven by certain personalities of his inner circle who have their eyes on the industrial sector and believe that this is the key to the prosperity of the middle class.

The reality is that Trump seems to have all these intentions at the same time. On some days, certain goals take more prominence than others, but in general he has made statements supporting all of these ideas. We still don't know how far he is willing to go, but what has become clear, for better or for worse, is that overnight he can change his mind and withdraw the tariffs he announced so enthusiastically just hours ago. This Tuesday, he said that the second round of 25% tariffs he announced yesterday on Canadian steel and aluminum will no longer be imposed.

The economy is a network of multiple connections and transmission mechanisms in which the final results may vary, as they depend on many factors. It is true that during President Trump's first term, his tariff policy did not cause inflation, in the strict sense of a generalized and sustained increase in prices, and that his tax cuts, deregulation, and generally safe and good environment for entrepreneurs gave the economy a much stronger positive boost than the negative effects of the tariffs.

But just because this happened in the first administration is no guarantee that it will happen again this time. The president's back and forth on tariffs is worrisome because it creates uncertainty that has been reflected in the stock market. What investors are seeing at the moment is, clearly, the harm that this tariff policy brings, and in a still very diffuse way, the possible benefits that could come from the announced tax cuts and deregulation, but that is not yet certain, and the proportions are not yet known.

Although the president's hectic tariff strategy causes uncertainty, and that is negative, the positive side is that it shows that to some extent his fundamental strategy, the basis of his behavior, as a good businessman he has been all his life, is to fluctuate depending on the results he is seeing. This gives hope to those of us who defend the free market as the fundamental source of prosperity, that if the president sees that his tariffs in a certain sector are causing obvious harm, he will back off.

Imposing tariffs can be good to some extent and depending on the context. Is it good to pressure a country to lower the tariffs it has placed on the United States? Of course it is. It would be a pro-market measure and a win-win strategy, but if along the way the end result is two countries with 50% tariffs and a serious diplomatic impasse, the outcome is not good.

For now, it is too early to know which of the different strategies or currents of the group closest to the president will prevail, whether the more protectionist one, or the one that sees tariffs only as a political strategy, or any of the others that are in the middle of the road. However, the president's commitment to cutting taxes and spending is a plus, and his basic instinct as a dealmaker, who can change strategy depending on the outcome, should give us hope that this situation can turn out very well, and hopefully away from extreme protectionism.