The immediate market reaction to Donald Trump’s tariff threats—a drop in the stocks of truck makers like Daimler and Traton—is only the tip of the iceberg. The real danger is a broader crisis of confidence that could spread beyond the directly targeted companies and infect the entire investment climate.
Investors value stability and predictability. The latest trade salvo has shattered both. The sudden, seemingly arbitrary nature of the tariffs creates a pervasive sense of risk that makes investors hesitant to commit capital. If a major industry like German trucking can be targeted overnight, what sector is truly safe?
This can lead to a general “risk-off” sentiment in the market, where investors pull money out of equities and flee to safer assets like government bonds. This can depress stock markets across the board, not just for the companies in the firing line. The fear is that the trade war could escalate, leading to a global economic slowdown that would hurt the profitability of all companies.
The situation also creates specific challenges for analysts and fund managers. It is now nearly impossible to forecast a company’s future earnings without adding a huge margin of error for “political risk.” A company could have a fantastic product and a great management team, but its stock could be decimated by a single tweet or policy announcement from Washington.
The UK’s pharmaceutical sector is a case in point. Investors in companies like GSK are now in limbo, unable to properly value the company until the tariff issue is resolved. This crisis of confidence is a major drag on the market, and it will persist as long as the trade landscape remains a battlefield.