Recent tariff announcements have sparked client questions about market volatility and inflation risks. By examining certain data from President Trump’s first term, we gain perspective and can better understand how tariffs might impact the economy today.
VIX Volatility & Tariffs
The CBOE Volatility Index (VIX), a key fear gauge, often reflects market uncertainty. Of the 100 lowest VIX closes since 1990, 80 occurred during President Trump’s first term (DataTrekResearch), including a record low of 9.14 in November 2017. Markets remained unusually calm despite tariff escalations, suggesting investors initially viewed tariffs as negotiating tools rather than systemic threats.
PCE Inflation Trends
During Trump’s first term, the Federal Reserve’s preferred inflation measure—the core Personal Consumption Expenditures (PCE) index—averaged 1.9% annually. While tariffs on Chinese goods and steel/aluminum raised prices for targeted products (e.g., washing machines, solar panels), broader inflation remained muted due to offsetting factors like energy price swings and a strong dollar. Notably, the 2018–2019 tariffs coincided with only a temporary PCE uptick to 2.8% in mid-2018 before settling back near 2%.
Historical Parallels
President Trump frequently references 19th-century tariff policies, arguing they fueled U.S. economic dominance. He has been talking about tariffs for 30+ years. Despite tariff uncertainty, markets have demonstrated remarkable calmness. While tariffs once served as a primary revenue source for the U.S., modern global supply chains make them more complex today, often leading to retaliatory measures and higher costs for businesses and consumers.
Key Takeaways
-Low VIX levels during prior tariffs underscore markets’ capacity to absorb short-term disruptions.
-Targeted tariffs may cause sector-specific inflation but haven’t historically derailed broad price stability.
-Diversification and flexible allocation remain critical amid evolving trade policy. History doesn’t repeat; the current economic landscape is not the landscape we saw during Trump’s first term.
-This analysis focuses on verifiable data, NOT political endorsement. Consult your advisor to align strategies with personal risk tolerance and long-term goals.
Tariff Talk
