The Tariff Selloff Narrative Doesn’t Make Sense
If you’re looking for an explanation of why the stock market has been stumbling, the financial press has a ready-made answer: blame Trump’s tariffs.
The claim is familiar, convenient, and utterly predictable. It also happens to be wrong. Markets don’t move in neat response to political narratives, and the idea that investors suddenly woke up to the perils of trade policy months after Trump was elected is as laughable as it is lazy.
If the press had a better explanation, they’d use it—so long as it made President Trump look bad. Instead, they’re dusting off the same script they used in 2018. But the numbers—and history—tell a very different story.
The Real Culprit: The End of the Government Spending Boom
Over the last few weeks, technology stocks and other speculative assets cratered, while safe assets such as Berkshire Hathaway, Treasury bonds, and dividend-paying stocks have held steady or even risen. If tariffs were driving the selloff, we would see broad market declines, not a selective retreat from high-risk, high-valuation stocks. This isn’t about tariffs—it’s about investors finally reckoning with the excesses of the past few years.
John Rekenthaler, Vice President for Research at Morningstar, put it plainly: speculators have ruled the market for years, chasing anything that looked exciting. But when confidence shakes, they stampede out the exits—just like we’re seeing now.
The same thing happened in early 2022 when the Fed started pulling back the easy money. This time, the trigger is different, but the dynamic is the same.
Rekenthaler also made another key point: the market’s timing doesn’t support the tariff panic theory. Tariffs weren’t some surprise revelation. Trump had been talking about them for months, yet the market surged from August through December. If tariffs were such a clear-cut market killer, investors wouldn’t have waited until late February to react. That’s simply not how markets behave. The selloff happened when speculation hit a breaking point—not because of tariffs.
The Sell-Off Is a Rotation, Not a Sign of Economic Doom
Jared Woodard argues in the latest Bank of America RIC Report that this selloff is a rotation, not an economic crisis. The report highlights a major shift in market fundamentals. Tech stocks are plummeting, while sectors such as defense, value stocks, and emerging market debt are gaining. Government-driven growth is fading as public sector hiring slows and spending levels shift. The market is adjusting to a world where speculation and following the government-spending goodie trail is no longer being rewarded.
Fiscal and monetary policy are in transition, forcing investors to reassess risk. High-budget deficits and heavy government spending have propped up speculative assets in recent years, but that cycle is ending. The RIC report underscores a fundamental truth: this selloff is the result of markets recalibrating after an era of over-investment in high-risk, high-momentum stocks. Investors are pulling back not because they fear tariffs, but because they are repositioning in anticipation of a new market environment.
Despite what the financial media wants you to believe, there is no academic support for the idea that tariffs drive broad market selloffs. History tells us the opposite. The Trump tariffs of 2018 and 2019 didn’t tank the market—it kept rising. Even Biden keeping those tariffs in place didn’t stop the rally. Markets only fell when speculative excess and Fed tightening caught up with them.
The reality is that tariffs are a long-term adjustment tool, not a short-term market killer. The argument that tariffs are responsible for this downturn is nothing more than a convenient excuse for investors who don’t want to admit that they bet too much on speculative assets.
The Financial Media’s ‘Liar’s Poker’ Routine
In Michael Lewis’ famous Wall Street tome Liar’s Poker, traders are depicted as inventing plausible-sounding but entirely imagined explanations for market moves to satisfy media demand for a simple narrative. When no one knew why the dollar was falling, they’d just blame “Arab selling” because it was a story that couldn’t be refuted. No one had a clue what the Arabs were doing or why, so it was a full-proof answer.
That’s exactly what’s happening now. The financial press needs a tidy explanation for why markets are falling, so they scream “Trump’s tariffs!” It doesn’t have to be true. It just has to sound good enough to keep the anti-Trump narrative going.
This selloff isn’t a referendum on tariffs or Trump’s policies. It’s a market recalibrating after years of massive overspending by government and speculative excess. Investors are running to safety. And Wall Street is looking for a scapegoat. Don’t buy the spin. This isn’t about Trump’s tariffs. It’s about a market waking up to economic reality, and that reality isn’t as bad as the fearmongers want you to believe.
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