Colas: Why Trump's Tariff Timing Is No Coincidence — And Investors Shouldn't Worry

The S&P 500 got off to a shaky start this week after President Donald Trump ramped up his China tariff rhetoric.

One analyst said Tuesday that the timing of Trump’s latest threats is not a coincidence, and investors shouldn’t sweat the latest trade war developments.

What Happened

Trump said the U.S. is raising tariffs on $200 billion of Chinese imports from 10 percent to 25 percent. The decision sent shock waves through Wall Street on Monday as investors feared the impact the tariff hike would have on U.S. companies that do business in China, as well as the potential for retaliation by the Chinese government.

Trump Sees Opportunity

DataTrek Research co-founder Nicholas Colas said in a note Tuesday that Trump’s decision to ramp up pressure on China likely coincided with his recent bump in approval ratings. Following the release of the Mueller report, Trump’s Gallup approval rating was 46 percent, the highest it has ever been.

Trump likely saw the bump in support as an opening to take a shot at China, Colas said. He likely made a calculated decision that, with his approval rating and the S&P 500 both near all-time highs, he would be willing to sacrifice a few points off of both to increase his negotiating leverage on China, he said. 

“President Trump’s approval ratings just now give him some latitude for playing hardball, even if it comes at the expense of equity prices. This story is not over yet, but it should end well enough." 

What’s Next

Colas said investors can expect near-term volatility to continue as the trade war headlines play out. However, the good news for investors is that both Trump and China are under tremendous pressure to reach a deal in 2019, and investors can expect just that. Colas said Trump needs to win over independent voters in the 2020 election, and a trade deal and a stable economy are his best path to doing so.

Despite this week’s trade war jitters, the SPDR S&P 500 ETF Trust SPY remains up 15.6 percent year-to-date.

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President Donald Trump disembarks Air Force One Friday, April 26 at Joint Base Andrews in Maryland. White House photo by D. Myles Cullen.