“They Forgot to Protect Our Industries With TARIFFS!” — Does a Trump Trade War 2.0 Loom?

There have been renewed talks about whether tariffs could send us into another phase of trade wars. And while it’s up for debate as to whether a trade war 2.0, so to speak, has already arrived, I do think that investors shouldn’t panic over concerns that further tariffs will further fan the flame that is inflation.

Undoubtedly, May’s inflation number came in at 4.2%. That’s quite hot. And while Fed chair Kevin Warsh sounded serious about bringing inflation back down, preferably back to 2%, it doesn’t look like the rate hikes are on the table quite yet.

Add the limited guidance, and it’s a mystery as to whether the second half will see those rate hikes come in and how many. Of course, frequent FOMC meetings are a good thing, and as oil prices take a bit of a nosedive, the economic data is certainly moving quite fast.

Could new trade war jitters get to markets?

With President Trump recently posting that past Presidents “forgot to protect our Industries with TARIFFS,” while highlighting progress made in bringing back chip production to America, it certainly feels like Mr. Trump is more than willing to accept any near-term inflationary pressures as a result of additional tariffs if it means bringing back supply chains and protecting key industries, most notably tech, as the AI revolution intensifies.

Time will tell if the tariff playbook pans out. And what it could mean for rates, Warsh, and the Fed moving into the second half of the year.

No dot plot, forward guidance, or anything of the sort might make it harder for investors to predict what happens next. But perhaps it’s right to keep an ear to the data rather than run the risk of unintentionally promising (a rate pause or hikes) something and then not delivering it later on.

Whether we’re talking about the uncertainties surrounding the USMCA (or CUSMA), 100% tariffs on French wine, or threats of 200%, maybe even 300% on semiconductors, such threats, at least in my humble opinion, are not to be taken lightly, even if parts of the market have already subscribed to a TACO (Trump Always Chickens Out) kind of trade.

Intel takes a victory lap

Indeed, 300% tariffs might be a tad too aggressive, but either way, firms are taking it seriously, with Taiwan Semiconductor (NYSE:TSM | TSM Price Prediction) expanding into America with new fabs and Apple (NASDAQ:AAPL) inking a new deal with Intel (NASDAQ:INTC) for chip production on U.S. soil.

For Intel, which the U.S. government owns a sizeable stake, that’s a massive victory lap. It might be a huge win for Apple as well, even though you wouldn’t know it from looking at the stock’s reaction on Thursday, as Intel shares popped just north of 10%.

For Intel, it’s winning the business of a giant. But for Apple, it’s de-risking its future while ensuring diversification as an AI capacity crunch hits Taiwan Semiconductor. In many ways, it’s a win-win proposition.

The bottom line

As a potential second act of a trade war arrives, I don’t think investors will panic as they did during Liberation Day last year. If anything, more developments regarding bringing back chip production to America might act as fuel for the AI trade. What is moving markets, though, is the Fed and its next move, which might be a hike or maybe not.

Time will tell. Either way, oil is navigating lower (on the Strait of Hormuz reopening), AI is entering its next phase (disfinflation anyone?), and if tariff worries settle, maybe there is room for optimism. In any case, markets already seem to be over any potential trade war threats, with the S&P roaring higher again on Thursday.