It's often been said that markets loathe uncertainty.
Protectionist policies add uncertainty. Simply put, how can investors predict who is going to be protected, and how trade partners will respond?
I had just stared my career in 1987 when the stock market crashed more than 20% in one day. This crash was blamed, in part, on aggressive talk on trade and the dollar that surprised market participants.
Today, interest rates and inflation are at an inflection point, possibly ending a decades long bull market in bonds. And the bull market in stocks is surely in its later innings as we push into the ninth year of the current uptrend.
As scary as these are, to quote (former Defense Secy) Donald Rumsfeld, they are "known unknowns" -- things that we know are variables that we need to watch.
A possible trade war is an "unknown unknown" -- a relative surprise, with potentially dire consequences for global economic activity.
I am speaking, of course, of the new tariffs on imported aluminium and steel being proposed by the Trump administration. While surely a positive for these metals, this is unequivocally negative for industries such as auto manufacturing, construction, heavy equipment, airplanes and appliances. More importantly, the interconnected nature of global trade means that everyone will be a loser when a tit-for-tat series of trade actions throws sand into the gears of commerce.
Tariffs don't exist in a vacuum. Which of our industries will be targeted by our trading partners for penalties? Technology? Media? Agriculture?
THAT is the very definition of uncertainty. Let's hope that cooler, more strategically-minded, heads prevail -- before this puts a crimp in a global economy that is finally growing in a synchronized fashion, underpinning both employment gains and rising corporate earnings.