The shock market and Trump voters' buyer's remorse

The stock market is melting down. Stocks fell sharply yesterday as traders nervously looked ahead to Trump’s tariff plans.

The S&P 500, the broadest market index, hit its lowest level since September.

A slew of tariffs previously announced by Trump will go into effect Wednesday — what Trump calls “Liberation Day” — including a 25 percent levy on all cars not made in the United States.

Trump is also expected to announce his plan for reciprocal duties aimed at countries that impose tariffs on U.S. imports. Trump has already imposed tariffs of 20 percent on Chinese goods, and more are expected later this week.

To be sure, the stock market is not the economy. The current meltdown isn’t directly affecting most Americans.

Just over half of all the shares of stock owned by Americans are held by the richest 1 percent. Over 90 percent are held by the richest 10 percent.

But the indirect effects of the market meltdown are likely to be felt by most Americans. That’s because the richest 10 percent account for about half of all spending.

This portion has been increasing as more of the nation’s total income has moved upward into the hands of the richest 10 percent. (Twenty-five years ago, the richest 10 percent accounted for about a third of all spending.)

When people who hold much of their savings in shares of stock see the stock market fall, they feel poorer — and this negative “wealth effect” causes them to buy fewer goods and services.

When they buy fewer goods and services, total demand in the economy drops relative to all the goods and services that could be produced at full employment. This causes employers to hire fewer workers and puts us on the road toward recession.

Trump and Musk’s mass firings of government workers are adding to the problem.

And as Trump’s planned tariffs kick in this week, the prices of many goods and services will ratchet upward — even if Trump “couldn’t care less,” as he says.

“Access to cheap goods is not the essence of the American dream,” says Trump’s treasury secretary, Scott Bessent.

Easy for Bessent, a former hedge fund investor who is worth hundreds of millions of dollars, to say. Easy for multibillionaire Trump to “not care less” about higher prices. Easy for Elon Musk, the richest person in the world, to continue to fire people willy-nilly.

But most Americans live in a world in which they cannot pay more than they’re paying now. Most are living paycheck to paycheck as it is.

Tariffs are paid by importers, and importers will pass on as much of the extra costs to consumers as they can.

That’s called inflation.

So it’s frighteningly likely we’ll be heading toward both inflation and recession.

This horrifying combination is termed “stagflation,” and it’s particularly pernicious because the Fed has no clear tools for dealing with it. If it raises interest rates to fight inflation, it hastens a recession. If it lowers interest rates to fight a recession, it hastens inflation.

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What do I advise, then, other than replacing Trump with a different president who understands tariffs and who cares if prices rise and the economy sours? And a treasury secretary who understands the real world most people live in?

Hopefully, we’ll get through this, although the next few years will be difficult — not only economically but in many facets of our lives.

As to you personally, I don’t give out investment advice. But if you hold shares of stock, your best bet is to keep holding them if you possibly can. If you’re on a fixed income, you may have no choice but to cut back on spending.

If you’re betting on American politics, the odds of a Democratic takeover of both chambers of Congress in the 2026 midterm elections are looking better and better.

Many Americans who thought Trump would “fix” the economy are now suffering buyer’s remorse. Sadly, they can’t take back their votes. But apparently Trump is contemplating a third term (the 22nd Amendment to the Constitution to the contrary notwithstanding), so perhaps they’ll get another chance.

Robert Reich is a professor of public policy at Berkeley and former secretary of labor. His writings can be found at https://robertreich.substack.com/.