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 or more 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.
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.
U.S.A. Will Win The War
In a game of chicken, who wins? Obviously, the biggest player with the greatest ability to withstand a collision. I expect other countries to concede to many of our demands if they want to avoid spiraling into a recession.
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.
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I live in Mexico and the buzz on social media overnight was that the problem is not Trump but rather the current president. Thus I was not surprised she ceded very quickly but she did get one small win that many will overlook – the US agreed to try and stem the flow of arms into Mexico.
The migrants have created havoc in Mexico but not for the reasons many believe. The cartels quickly discovered they could profit handsomely off fees they charge them to cross Mexico as well as tying up US border resources that permitted drugs to freely flow across the border.
Last February I was in a small town along the Guatemalan border where the local indigenous population formed a militia that took over the town and prevented migrants from entering. Even the National Guard and the Navy stayed out the town.
Fascinating on the ground color. Thanks!
So Sam, in this scenario, is now a good time to buy real estate? One could get in now with more challenging mortgage rates, and then refinance once rates ease, while asset value continues to increase?
I believe so. Especially for residential commercial real estate, more prices have declined almost to the magnitude of the global financial crisis slows, yet the economy is much stronger and household. Balance sheets are much larger.
But of course, you always want to find a deal and negotiate hard. Given you are in the Bay Area, I expect to see a wave of liquidity go into the real estate market due to so much tech wealth being created since 2000.
I get that when markets go down investors usually buy bonds which in turn should lower interest rates. However, if the market goes down because people see higher inflation ahead do you still think they’ll be a rush to bonds? I’m not so sure.
Everything is fluid, but for a certain time period, yes. The safety of bonds would make them even more attractive if there is fesr of another recession.
At what levels do you start to buy the dip, Sam?
I bought at the open aggressively this morning. In the game of chicken, we will win against other nations.
Basically, I’m buying below S&P 500 6000 level.
One has to be careful because China has yet to forcefully respond, which could easily hit the market again.
It shouldn’t surprise me that Trump would be quick to rock the boat. I didn’t follow the trade news from his first term that closely. But I am more curious the second time around as I have cash to invest. I really appreciate your analysis and thoughts on what could unfold and how to take advantage. Even when things are dicey and frustrating there’s always a silver lining. And it helps to envision multiple outcomes when making any type of investment decision. Thanks!
It is my opinion that Canada will respond with heightened efforts to protect against border crossings within 30 days and instill efforts to stem the tide of fentynol transports within 3 months. Mexico, On the other hand is handcuffed as the cartels represent a major revenue source and the cartels are primarily drug funded. I am unconvinced that increased tariffs will have but a minor influence on Mexico’s actions. President Trump and Serbof Defense Hegseth may be required to take more direct actions to curtail/end cartel influence.
I also think tariffs will have zero effect on the drug trade from Mexico. The government here (I write from Mexico City) is SO VERY LINKED with narcotrafficking. (And I think any party who would have won would be linked with them, it’s not only Morena). But, Morena, most blatantly. The only way to deal with narcotrafficking is to probably treat them like a terrorist group and have an all out war. I do not know how powerful they are, and cannot comment as to if this is a functional path for the USA to go down. I do think that is the only way things will change. The narcos are infiltrated in everything. If you keep your head down, then things are calm.
I think these tariffs will only alienate the productive and legitimate part of the Mexican economy. And Mexico is a great trade partner, and they export so much, bc the people here work so hard.
Is it simply because the drug lords give so much money and will threaten to hurt Mexican government officials and their families, which is why they are so “linked”?
This type of corruption doesn’t fly here in USA, so I’d love more perspective of what’s going on.
length of the trade war….about 6 months.
I think it will create unemployment, and houses will be lost to the bank.