As a stock market investor, I’m disappointed in the new tariffs President Trump has imposed—10% on imports from China and 25% on imports from Mexico and Canada, including a 10% duty on Canadian energy imports (oil, natural gas, electricity). If these tariffs persist all year without resolution, corporate earnings could take a 2%-3% hit, which means a similar drop in the S&P 500 wouldn’t be surprising.
As expected, the retaliations came fast. Canada’s soon-to-be-gone Prime Minister Trudeau hit back with matching 25% tariffs on $155 billion worth of U.S. imports, targeting alcohol and fruit, which could significantly impact major U.S. exporters.
Meanwhile, Mexico’s President Sheinbaum rejected Trump’s claims about Mexico collaborating with criminal organizations and implemented her own retaliatory tariffs on U.S. goods. She also suggested the U.S. should focus on fighting domestic drug trade and money laundering rather than blaming Mexico.
We should expect retaliatory measures from China soon. In the last U.S.-China trade war, many American businesses and consumers bore the cost of tariffs on Chinese goods through higher prices, while some Chinese exporters lowered prices to stay competitive.
This is the classic “standing at a concert” analogy—if one person stands up, the row behind them has to stand up too, leaving nobody better off. Tariff wars tend to follow the same pattern, so the logical outcome is a compromise. The question is: how long will markets have to endure the uncertainty before that happens?
Trade Wars May Boost the Housing Industry
Everyone knows tariffs hurt the global economy, which is why a rational Trump will likely negotiate a compromise. However, with new tariffs on European goods also on the table, it’s unclear how quickly world leaders will reach an agreement before consumer confidence takes a major hit.
Despite the market disappointment, as a real estate investor, I see an upside: trade wars could fuel a housing boom.
Initially, Treasury bond yields may rise due to short-term inflationary pressure on imported goods. But in the medium term, as trade tensions escalate, capital should flow from riskier assets like stocks into Treasury bonds, pushing yields lower. If fears of a global slowdown intensify, mortgage rates could drop significantly, improving affordability and spurring demand for housing.
When housing affordability increases, so do real estate transactions, remodeling projects, furniture purchases, landscaping jobs, and mortgage originations. The housing industry is a key driver of the U.S. economy, typically accounting for 15%–18% of GDP. With an existing housing shortage and years of pent-up demand, lower rates could reignite bidding wars nationwide.
Real Estate As A “Bonds Plus” Investment
I’ve never been big on bonds (~2% of my net worth) because I prefer higher-risk, higher-reward investments. I see real estate as a bond alternative, offering potential appreciation, rent increases, and tax advantages. Over the past 22 years, my real estate holdings have outperformed Treasury bonds and the aggregate bond index, and I expect that to continue.
Of course, owning physical real estate isn’t passive. This past weekend alone, I spent three hours painting my old house after my tenants moved out. Next up: replacing grout, power washing, deck touch-ups, and landscaping the front yard. While I enjoy presenting a great product, the maintenance work takes time away from other pursuits.
As I get older, I find myself naturally shifting toward more online real estate investments and away from physical property ownership. The appeal of a simpler, lower-maintenance life is growing—just like the housing market might if mortgage rates drop.
Taking Advantage of the Stock Market Sell-Off
During his previous term, former President Donald Trump initiated major trade conflicts, most notably with China, starting in July 2018. The U.S. imposed tariffs on approximately $550 billion worth of Chinese goods, while China responded with tariffs on about $185 billion worth of U.S. goods. The tensions caused market volatility before culminating in the Phase 1 trade deal in January 2020, which eased some disputes.
On July 18, 2018, the S&P 500 stood at 2,800 before selling off to 2,485 by December 18, 2018—an 11% decline. However, by January 2020, the market had rebounded to 3,300, delivering an impressive 32% gain. If history repeats itself, a 10%+ correction could present a strong buying opportunity.
Market pullbacks always feel painful in the moment, but they’re nothing new. Since 1950, the S&P 500 has experienced a correction (declines of 10% or more) roughly every 19 months. Since 1980, the average intra-year decline has been 14.3%, making double-digit drops relatively common. Meanwhile, bear markets (declines of 20% or more) occur about once every six years on average.
Given that I’m currently underweight public equities, I’m eager to buy the dip. But what excites me even more? Buying the dip for my kids—a move I hope they’ll appreciate 10-15 years down the road when they’re in high school or college.
Readers, how long do you think this trade war will last? Will it push capital into real estate and drive home prices higher? How are you positioning your investments?
Disclaimer: This is not investment advice to you, only my thoughts about how trade wars can affect different risk assets. Please do your own due diligence and invest according to your risk tolerance and financial goals.
Subscribe To Financial Samurai
Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Your shares, ratings, and reviews are appreciated.
To expedite your journey to financial freedom, join over 60,000 others and subscribe to the free Financial Samurai newsletter. Financial Samurai is among the largest independently-owned personal finance websites, established in 2009. Everything is written based on firsthand experience and expertise. Read my About page for more info.