But, just as suddenly, trade policy disappears from view. However, it would be wrong to see its apparent disappearance from view as a sign that its economic impacts have been fully discounted.

Another way of thinking about this description of market psychology is that traders and investors follow the fashion. Trade policy might have been the height of ‘fashion’ around ‘liberation day’ on April 2nd this year but, since then the fashionistas have moved on to other issues like Trump’s one big, beautiful bill, Fed easing and, right now, speculation over a government shutdown.

We can see this loss of market interest in trade policy if we plot a measure of trade policy uncertainty against asset price volatility, such as the VIX index. It shows that the VIX spiked with trade policy uncertainty in the spring but both have fallen steadily since then; something that has gone hand in hand with the rally in US stocks or, in terms of treasuries and FX, the stability in bonds and the dollar in recent months.

Notably, any new trade-policy shift that occurs, such as Trump’s Friday announcement of 100% tariffs on pharmaceuticals from many countries, fails to register a murmur in the uncertainty index or asset price volatility. As we said, the fashion has moved on and trade policy is old news. But does this mean that it is unimportant news?

For a start, one thing to bear in mind about these uncertainty indices is that they are based on how many times words like ‘trade policy’ and ‘uncertainty’ occur together in press reports. Almost inevitably, the number of mentions falls with time; but this does not mean that the threat is any less intense.

For instance, a measure that tracked words such as ‘Ukraine, Russia and war’ would register a steep decline since the conflict broke out in February 2022 but many analysts doubt that anybody in Ukraine thinks that the war is essentially over. So it is with trade conflict between the US and the rest of the world as well. For while there might be a fairly contemporaneous relationship between measures of trade policy uncertainty and asset price volatility, there is a long lag before the rise in trade uncertainty sees its full economic effects and that in turn can generate what we might term second-round damage to asset prices such as the dollar, US stocks and treasury prices. We have started to see fragility creep into the economy, especially the labour market, which is one half of the stagflationary impact of tariffs.

The second half; higher inflation, might not have been as severe as feared at this stage, but this will come in time. And, when it comes to financial asset prices, the fact that the market seems to have forgotten the trade issue, and moved onto other factors, only serves to increase the risk of volatility as more of the economic harm caused by tariffs starts to reveal itself.

Steven Barrow, Head of Standard Bank G10 Strategy, said this presents a risk to stocks, the dollar and treasury prices. If we are correct it will challenge the notion that financial markets are good at subsuming future economic activity into current asset prices whenever a significant disturbance, like tariffs arises. The same news sources that list the trade policy uncertainty references that go to form the various uncertainty indices have also questioned why financial markets have been able to recover from the trade policy shock so quickly and aggressively.

“If we are correct in our view, it reflects the innate ability of markets to shift to a new theme, or fashion. But leaving behind the shock of trade policy will prove difficult in our view as more and more of the harmful effects of trade policy show through in the data; in policymakers’ reaction functions, and ultimately in financial asset prices”, said Steven Barrow.