From 'Trump bump' to 'Trump slump': Tariff whiplash rattles markets ahead of April EU and UK tests

On Tuesday, the United States put tariffs on its three largest trading partners. Mexico and Canada, both of which have free-trade agreements with Washington, were hit with 25% levies on their exports. Canadian heavy crude, which the US still relies on to hold down petrol prices, got a lower rate of 10%. Chinese imports saw their tariff double to 20%. Within 48 hours, the measures against Mexico and Canada had been paused.

That reversal is the heart of a week that left markets spinning. After the election, expectations of a policy platform friendly to Wall Street produced what traders called a "Trump bump": the S&P 500 rose 2.5% by the time the celebrations were cleared away. The rally carried on past the inauguration, and by mid-February the index stood 6.3% above where it started. Since then it has slid back, and the slide sped up during the last week of erratic moves. By Tuesday the S&P had handed back all of its post-election gains, then fell further as tariffs imposed by executive order were lifted on the president's say-so.

The turn to tariffs should not have been a surprise. They were a central campaign promise, and Trump has called the word the most beautiful in his limited vocabulary. What unsettled markets was the manner of their use: the belligerence, and the unpredictability.

The costs are not in dispute. Faced with sharply higher prices, importers can absorb them by cutting profit margins, investment and eventually growth, or pass them to customers through higher prices. The effects were broad and immediate. The US car industry and its suppliers saw trading arrangements change three times in 48 hours. Executives at major retailers, Target among them, warned of price rises. Three north-eastern US states faced soaring energy bills after Ontario's counter-tariffs threatened their supply.

What remains unclear is whether the president's motive is economic or political. Treasury Secretary Scott Bessent suggested on Friday that it is both. In an interview with CNBC, he said the tariffs were meant to address America's fentanyl crisis, giving Washington leverage to press Canada and Mexico on cross-border smuggling and China on the flow of precursor chemicals.

Bessent also said the programme will require consumers to "detox" from government support while they wait for the private sector to deliver the jobs and wage growth needed to outpace inflation. That sounds like a more fundamental reset, one in which the value of the dollar, which fell all week, matters less.

For the president and some of those around him, tariffs are also a matter of ideology. The protectionist argument holds that cheap imported consumer goods have hollowed out American manufacturing, and that the resulting trade deficits act as a tax on American jobs. Tariffs, in this theory, discourage imports and encourage production at home. But that is a long-term correction. In the short term, the cost falls on American companies and consumers, and through them on a global economy that still orbits the US.

The next test is close. The White House is due to announce a global reciprocal tariff regime on 2 April, covering the EU and the UK. By then there may be a clearer sense of whether Trump's popularity, and his ego, can withstand a market downturn, rising prices and the criticism that would follow.