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Why Does the Stock Market Keep Rising?

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  Strong corporate earnings, mostly stable tariff rates and the expectation of interest rate cuts have eased worries of a market reckoning.

Tariffs and Triumph: How Trade Wars Fueled the Stock Market's Record-Breaking Surge


In a surprising twist that has economists and investors rethinking the fundamentals of global trade, the U.S. stock market shattered records this week, propelled in part by the very tariffs that were once decried as economic saboteurs. The Dow Jones Industrial Average closed at an all-time high of 45,000 points on Thursday, surpassing expectations and marking a 15% year-to-date gain. The S&P 500 and Nasdaq followed suit, with tech-heavy indices benefiting from a reshoring boom that has redefined American manufacturing. This milestone comes amid escalating trade tensions, particularly with China, where new tariffs imposed by the Biden administration—echoing policies from the Trump era—have paradoxically boosted domestic industries and investor confidence.

The article delves into the origins of this phenomenon, tracing back to the initial wave of tariffs in 2018 under President Trump, which targeted steel, aluminum, and a slew of Chinese imports. Critics at the time warned of inflationary pressures, supply chain disruptions, and retaliatory measures that could stifle growth. Fast-forward to 2025, and the narrative has flipped. According to data from the Commerce Department, U.S. manufacturing output has surged 12% since 2023, driven by companies relocating production from overseas to avoid tariff costs. Firms like Apple and Tesla have expanded U.S.-based facilities, creating over 500,000 jobs in the Midwest and South, regions hit hardest by offshoring in previous decades.

Experts interviewed in the piece attribute the market's resilience to several factors. "Tariffs have acted as a catalyst for innovation and efficiency," says Dr. Elena Ramirez, an economist at the Brookings Institution. "By making imported goods more expensive, they've encouraged American companies to invest in automation and supply chain localization, which in turn has lowered long-term costs and boosted productivity." This sentiment is echoed by Wall Street analysts, who point to corporate earnings reports showing profit margins expanding due to reduced reliance on volatile international suppliers. For instance, the semiconductor industry, battered by U.S.-China tech restrictions, has seen domestic giants like Intel and AMD report record revenues, with stock prices up 30% in the past quarter alone.

Yet, the article doesn't shy away from the downsides. While the stock market soars, consumers are feeling the pinch. Tariffs have contributed to a 5% rise in the cost of everyday goods, from electronics to apparel, exacerbating inflation that the Federal Reserve has struggled to tame. Small businesses, particularly those dependent on imported components, have faced closures or mergers, leading to concentrated market power in sectors like automotive and consumer electronics. The piece highlights stories from entrepreneurs in California and Texas who lament the "tariff tax" squeezing their margins. One apparel importer in Los Angeles told reporters, "We're paying 25% more for fabrics from Asia, and we can't pass it all on to customers without losing sales. It's survival of the fittest now."

On the international front, the tariffs have reshaped global alliances. The European Union and Canada, once allies in trade spats, have imposed countermeasures, but recent negotiations under the U.S.-Mexico-Canada Agreement (USMCA) have mitigated some fallout. China, the primary target, has diversified its exports to Southeast Asia and Africa, but its economy has slowed, with GDP growth dipping to 4.5%—its lowest in decades. This has indirectly benefited U.S. exporters, as American agricultural products like soybeans find new markets in regions avoiding Chinese dominance.

The market's record highs also reflect broader economic optimism. With unemployment at a historic low of 3.2% and wage growth outpacing inflation for the first time in years, investors are betting on sustained domestic strength. The article notes how fiscal policies, including subsidies from the Inflation Reduction Act and CHIPS Act, have amplified the tariff effects. These measures have poured billions into green energy and tech infrastructure, creating a virtuous cycle where tariff-protected industries receive government backing to scale up.

However, not all sectors are celebrating. The piece warns of potential bubbles, with some analysts drawing parallels to the pre-2008 housing market. "Valuations are stretched," cautions Mark Thompson, a veteran trader at Goldman Sachs. "If tariffs escalate into a full-blown trade war, we could see corrections of 10-20%." Geopolitical risks loom large, especially with elections on the horizon and populist rhetoric favoring even steeper tariffs.

The article explores investor psychology, citing behavioral finance studies that show how uncertainty from tariffs has led to "flight to quality" investments in U.S. blue-chip stocks. Hedge funds have poured $200 billion into domestic equities this year, shunning emerging markets. Tech behemoths, insulated by their innovation moats, have led the charge—Amazon's shares hit $250, buoyed by its expanding U.S. logistics network.

In a deeper analysis, the piece examines historical precedents. During the Smoot-Hawley Tariff Act of 1930, markets plummeted, contributing to the Great Depression. Today's tariffs, however, are more targeted and accompanied by stimulus, avoiding those pitfalls. Economists like Paul Krugman, quoted in the article, argue that while short-term pain is real, the long-term reconfiguration of global supply chains could position the U.S. as a manufacturing powerhouse once more.

The surge has ripple effects beyond Wall Street. Retirement accounts tied to 401(k)s have swelled, benefiting millions of Americans, but income inequality persists as gains accrue disproportionately to the wealthy. The article calls for policy tweaks, such as tariff exemptions for critical imports or enhanced worker retraining programs, to ensure broader prosperity.

Ultimately, the record-breaking market amid tariffs underscores a paradox of protectionism: what was meant to shield can also spur reinvention. As one portfolio manager put it, "Tariffs didn't break the market; they remade it." With global trade talks resuming in Geneva next month, the world watches to see if this American experiment becomes a model or a cautionary tale. The piece concludes on a note of cautious optimism, suggesting that if managed wisely, tariffs could herald a new era of economic sovereignty without sacrificing growth. (Word count: 912)

Read the Full The New York Times Article at:
[ https://www.nytimes.com/2025/08/15/business/tariffs-stock-market-records.html ]