Side-Effect of Trump Flip-Flopping on Tariffs

April 11th 2025

I think that we can all agree that Trump's latest flip-flopping on tariffs have caused great volatility in the stock market. The VIX, a popular index for measuring the expected volatility of the S&P 500's index options is at a level that hasn't been seen since the COVID pandemic.

I'm not here to try to pretend I know why Trump is doing this. Instead, I'd like to point out an interesting side-effect from his actions.

Simply put, his flip-flopping is indirectly benefiting a few select firms that have donated large amounts to his campaign. My argument goes something like this:

1. By flip-flopping on tariffs, he is introducing uncertainty for business-owners and investors.
2. Since people are more uncertain about the future, they are more uncertain as to how to price various securities. This increases the bid-ask spread on all securities, which is the price between what people are offering to buy a security for, and what people are willing to pay.
3. Market makers benefit from high uncertainty, because their profits come from the bid-ask spread. Market-makers (also called liquidity providers) are firms that both buy and sell securities that they hold, hoping to turn a profit on the difference in price that they offer.
4. Market-makers like Goldman Sachs, Ripple, Coinbase, Kraken, Robinhood and Circle have donated significant amounts to Trump's campaign.

While the share price/value of these donors might have dropped since Trump took office, it might be that in the long run, the increased market volatility is actually a benefit for these companies since it will increase their profits.