CROCODILE TEARS? The Tariff Tremor: How Trump's Trade Policy Shocked the Market and Enriched Wall Street

GOLDMAN FEELS YOUR PAIN

“The four most dangerous words in investing are: ‘This time it’s different.’” – Sir John Templeton

The stock market has been roiled in recent weeks by an aggressive trade policy shift from the Trump administration. In a move designed to enforce "trade parity," the President announced sweeping, across-the-board tariffs on imports from the European Union, China, Mexico, and Canada. The tariffs were not only broad in scope but also substantial in rate, setting off a cascade of reactions across the financial system.

This was no token gesture or diplomatic posturing. It was an economic blitzkrieg, telegraphed with only 3 to 5 days' notice. The short timeline amplified market volatility and left investors and institutions scrambling. The policy’s shockwaves were felt almost immediately: the Dow Jones Industrial Average plummeted, tech and industrial stocks sold off hard, and multinational corporations with global supply chains were hammered.

Yet, while retail investors and passive funds bore the brunt of the damage, major brokerage houses like Goldman Sachs and JPMorgan Chase found themselves in a familiar position: profiting from crisis.

Many observers asked a key question: why didn’t brokerages protect their investors better? After all, with even a few days’ notice, these firms could have hedged exposure, shifted portfolios, or advised clients to brace for impact.

The answer lies in the dual nature of these institutions. While their public-facing roles center around wealth management and investment advice, they also run powerful proprietary trading desks. These desks are structured to profit from market dislocations, not prevent them. And in the face of Trump’s tariffs, dislocation came in waves.

Brokerages may have appeared slow to shield retail and advisory clients, but they were likely already placing strategic bets. These included:

• Shorting multinational equities vulnerable to tariff exposure (e.g., GM, Apple, Caterpillar).

• Buying domestic manufacturing and raw material stocks (e.g., U.S. Steel, Nucor).

• Piling into Treasury bonds and inflation hedges like gold and TIPS.

• Leveraging volatility products like the VIX to profit from market panic.

In addition, client activity surged. Retail and institutional investors panicked, trading volume spiked, and brokerages collected billions in transaction fees, spreads, and derivatives commissions. Structured products designed to hedge trade risks were rolled out quickly, further lining Wall Street’s pockets.

As equity markets slid, investors looked for shelter. The logical destination? U.S. Treasury securities.

The yield curve—a graphical representation of interest rates across different maturities—shifted dramatically in response to the trade war escalation.

Initially, yields across all durations dropped in a "parallel shift," indicating a flight to safety. As fears of recession grew, the yield curve began to flatten, and even invert in some spots—an ominous sign. Historically, an inverted yield curve has preceded nearly every U.S. recession.

Yet, paradoxically, the tariff crisis made U.S. debt more attractive. Despite political tension, the world still views U.S. Treasuries as the safest investment. Foreign central banks, institutional investors, and sovereign wealth funds increased their holdings, reinforcing the dollar's dominance. The U.S. could still finance its deficits—at least for now—by selling more debt at favorable rates.

A graph illustrating different yield curve scenarios: the normal yield curve (yellow) rises, showing higher yields for long-term investments; the flattened yield curve (orange) is nearly flat, indicating comparable yields for both short and long-term; the inverted yield curve (red) slopes downward, with short-term yields exceeding long-term ones; and the steepened yield curve (pink) displays a more pronounced rise from short to long-term yields.

The Trump tariff policy was aimed at recalibrating America’s global trade position. But in the process, it exposed the fragility of global markets and the predictability of Wall Street’s playbook.

Brokerage houses may not have protected every investor, but they protected themselves—and profited. The sharp drop in equities, the scramble into Treasuries, and the surge in volatility created a multi-billion-dollar windfall for those prepared to ride the chaos.

Long-term, the episode underscores a troubling truth: America's financial markets are increasingly reactive, politicized, and vulnerable to shock events. Yet in that environment, demand for U.S. securities remains robust. Wall Street doesn’t fear volatility—it monetizes it.

Whether that’s sustainable or just a house of cards propped up by global faith in the U.S. dollar is the next question for policymakers and investors alike.

“Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.” – Charlie Munger