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President Trump’s policies are straining the international trading system that for decades has helped corporate America reap increasing profits. So why is the stock market moving higher, while relations between the United States and its largest trading partners are deteriorating?
The Standard & Poor’s 500-stock index closed up on Monday, the first day of trading after Mr. Trump’s pugnacious stance rattled the summit meeting of the Group of 7 nations that was held over the weekend.
The calm makes some sense. Investors think that trade skirmishes could be outweighed by two major reasons to be bullish.
First, economic growth in the United States, which has been relatively strong for some time, may now pick up even more. Recent tax cuts might encourage businesses and consumers to spend more. Wall Street analysts expect profits of the companies in the S.&P. 500 index to surge by 26 percent this year, which is a remarkable amount. And companies with top-performing stocks, such as Netflix and Microsoft, sell products and services that are unlikely to be the direct target of hostile trade actions.
Second, when Wall Street analysts do drill down to try to discern the impact of specific tariffs on companies, their conclusions are not that worrisome. Take Mr. Trump’s levies on steel and aluminum, which are now in effect. These have enraged other countries and will no doubt push up costs for many United States companies that use the metals. But the overall impact on corporate earnings might be muted.
The stock prices of Ford and General Motors — two companies that should be hurting from the rising metal prices — have risen since mid-February, when it became clear that the Trump administration was intent on imposing its metals tariffs.
Mr. Trump, of course, is threatening more than just metals tariffs. On Friday, the United States is scheduled to release its final list of products from China that will be covered by a further $50 billion of tariffs. The Trump administration said it would impose the tariffs soon afterward. China has threatened to retaliate.
Yet investors, even though they know a trade war is looming, have not dumped stocks in some of the companies that look particularly vulnerable. Computer chip makers like Qualcomm have a large proportion of their sales in China, but Qualcomm’s stock has recently rallied.
That rise helps explain why investors don’t appear spooked. Qualcomm’s shares have benefited from the expectation that the United States and China would reach a deal over ZTE, the Chinese electronics maker that is the subject of United States penalties. When the White House did strike an agreement, that may have confirmed for investors that the escalating back-and-forth between the Trump administration and Beijing is a negotiating tactic, and that the actual outcomes will be far more benign.
Investors may be less bullish about the overall market than they look. The S.&P. 500 is up only 2 percent since mid-February, when the recent trade tensions began in earnest — and that small increase has relied heavily on a rally in technology stocks. If it wasn’t for concerns over trade, Wall Street’s recently upgraded earnings expectations might have pushed stocks to much higher levels than they are at right now.
The imposition of $50 billion of tariffs on Chinese goods is likely to lead to some rocky days for the stock market. But unless investors believe that profits are going to get whacked, they appear willing to tolerate Mr. Trump’s trade measures.
Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them. Get the DealBook newsletter.