Trump’s Trade War Looks Brutal for Finance, Too

President Trump’s mad trade war is all about goods, but financial services are also suffering from the White House’s arbitrary global tariffs. Bank stocks sold off harder than the wider S&P 500 index on Thursday, and that looked like continuing on Friday. The reason is that unless something changes fast, this industry is about to get hit from all sides at once.

For banking, credit card lending, money management and investment banking, Trump’s attempt to take on the world and bully friend and foe alike into reversing their goods trade balances promises to be a nasty mix. Inside the US, it raises the specter of stagflation, the worst possible economic environment for banks because inflation and low growth (or even recession) drive up loan losses. Whatever the Federal Reserve does will be painful for lenders. Maintain high interest rates to tackle the inflationary effect of tariffs, and bad loans will rise rapidly as jobs are lost. Cut rates faster to cope with a worse slowdown — which is what markets are betting on — and interest income gets squeezed faster while credit losses still likely rise.