Trump Backs Down, Markets Soar? Tariff Surprises and Global Industrial Sector Responses

Abstract

This study investigates how industrial firms’ stock prices responded to Trump's tariff postponement announcement on April 9, 2025, and examines the factors driving these reactions. It emphasizes variations across market types (developed, emerging, frontier), industries, firm size, and growth, highlighting the industrial sector's exposure to trade policy uncertainty. Employing an event study methodology, the analysis measures cumulative abnormal returns for 1,732 industrial firms across 51 countries. Market responses are evaluated across market types, industries, firm size, and growth characteristics, while cross-sectional regressions assess how tariff exposure, leverage, and firm fundamentals shaped reactions to trade policy shocks. Results show that industrial markets experienced significant pre-event declines, with frontier markets most affected by limited liquidity, while developed markets led the rebound post-announcement. At the industry level, manufacturing declined sharply but recovered quickly, transportation remained stable, and construction adjusted more slowly. Firm-level analysis reveals that small-cap and low-growth firms were more adversely affected, whereas large-cap and high-growth firms recovered more strongly. Cross-sectional evidence identifies tariff exposure, leverage, and firm characteristics as significant determinants.