> The market is still pricing in the optimistic scenario of tariffs being repealed
"The market" has no idea what the impact of the proposed changes are. Setting aside the obvious questions about whether or not this stuff will even happen, it's just not possible for something this complex to be evaluated so quickly.
This is panic. People are wildly guessing about the "worst case scenario", without any detailed understanding (or even data) on what might happen [1,2]. It's all speculation, but lots and lots of people love to write horror stories for clicks and points.
[1] Just for example: what does it even mean for an "X% tarrif on all products from country Y" to be imposed? The Harmonized Tariff Schedule is hundreds of thousands of line items, each with a different rate. Are they all being replaced with a single number? Is that line item number being multiplied by a factor? Something else? I guarantee that almost nobody knows the answer to that question right now. I'm not even sure an answer exists.
Working through that changeset is a non-trivial operation, and then, working through the impact on something as detailed as a supply chain for any non-trivial product is immensely complicated. Now do it for every product.
> "The market" has no idea what the impact of the proposed changes are. Setting aside the obvious questions about whether or not this stuff will even happen, it's just not possible for something this complex to be evaluated so quickly.
This is just false. Countless people were busy running scenarios based on the expected range of tariffs. It wasn’t a surprise that tariffs were coming. It was a shock that they were so insanely high and that the people putting them forward were so clueless about it.
> [1] Just for example: what does it even mean for an "X% tarrif on all products from country Y" to be imposed? The Harmonized Tariff Schedule is hundreds of thousands of line items, each with a different rate. Are they all being replaced with a single number? Is that line item number being multiplied by a factor? Something else? I guarantee that almost nobody knows the answer to that question right now. I'm not even sure an answer exists.
You’re projecting your own lack of understanding on to everybody else. The changes have been out already and any company that does business has already read through the documents.
Just because you don’t know or understand doesn’t mean that nobody does.
> This is just false. Countless people were busy running scenarios based on the expected range of tariffs.
Appeal to authority ("the experts did the math!"), but OK...
> It wasn’t a surprise that tariffs were coming. It was a shock that they were so insanely high and that the people putting them forward were so clueless about it.
Right. So...they didn't do these scenarios. Which means (repeat after me): everyone is guessing.
Even if I accept your appeal to authority, and even if I assume that their "models" are sufficiently good to predict the future in a chaotic unfolding scenario involving dramatic changes to a complex global trade system [1], I basically guarantee that the average market player is "vibe trading" right now, not working from these models.
I'm not saying that it's impossible to work out the answer. I'm saying that takes time.
Also, no one seems to be taking into account that most countries are in active negotiations to reduce or eliminate the tariffs. So the US may end up getting something else in exchange for them being partially or wholly lifted on countries where a deal can be made.
I'm don't understand the disagreement because it's not like I'm saying that markets perfectly price all available information.
Even if securities are not priced perfectly accurately, it's still a fact that investors know that Trump might change his mind. It's still a fact that investors know that the Supreme Court might strike down the tariffs. These optimistic possibilities reduce the amount of panic and reduce the magnitude of the drop.
If the Supreme Court ruled against the lawsuit brought by New Civil Liberties Alliance tomorrow then the market would drop even more than it otherwise would, because it makes it even more likely that the tariffs will remain.
> I'm struggling to understand the disagreement because it's not like I'm saying that markets perfectly price all available information.
You're being sanguine about the power of markets to react to short-term change. Basically, "all available information" consists, at this time, of what I posted above. Be honest: what can you infer from it regarding the "correct" level of price change in the S&P500? But that's too ambitious: what's the correct level of price changes in, say, machine screws?
You can't know the answer. Nobody can. The best any particular expert analyst might be able to do, right now, is to speculate about the impacts of the top-line tariff rates on a given company's product prices. But they cannot:
* know if those prices are correct
* know how the pricing of other products (which they don't analyze) will materially affect those pricing models.
* know what compensating strategies the company might employ
* know the costs of those compensating strategies
* know the impacts of the price change on the market demand for the product(s)
* know the impact of the price and demand changes on margin
...and so on. There are so many unknowns here. Even the most informed analysts are just wildly guessing based on headlines and vibes. I have 0% faith the "market" is currently providing a useful estimate of the impact of these changes, and I have 100% certainty that the people confidently asserting things (like a market projection) are fools, or simply talking their book.
"The market" has no idea what the impact of the proposed changes are. Setting aside the obvious questions about whether or not this stuff will even happen, it's just not possible for something this complex to be evaluated so quickly.
This is panic. People are wildly guessing about the "worst case scenario", without any detailed understanding (or even data) on what might happen [1,2]. It's all speculation, but lots and lots of people love to write horror stories for clicks and points.
[1] Just for example: what does it even mean for an "X% tarrif on all products from country Y" to be imposed? The Harmonized Tariff Schedule is hundreds of thousands of line items, each with a different rate. Are they all being replaced with a single number? Is that line item number being multiplied by a factor? Something else? I guarantee that almost nobody knows the answer to that question right now. I'm not even sure an answer exists.
[2] This is the only thing I've found that comes close to answering the question: https://hts.usitc.gov/reststop/file?release=currentRelease&f...
Starting just from the first line item leads to a branching set of changes, many of which have exceptions and dependencies on other changes:
https://hts.usitc.gov/search?query=9903.01.25
Working through that changeset is a non-trivial operation, and then, working through the impact on something as detailed as a supply chain for any non-trivial product is immensely complicated. Now do it for every product.