What to Expect From Trump's State of the Union Address
Summary
- Tariff Escalation: The administration is transitioning from "reciprocal tariffs" (deemed illegal) to Section 122 tariffs, currently at 15%. This is disrupting trade deals with the UK and EU.
- Customs Chaos: The shift has created "chaos customs," significantly impacting small businesses and importers who face higher costs and logistical hurdles.
- Political Backlash: 72% of independent voters dislike the tariffs. Special elections in states like GA, TX, and VA are serving as referendums against the President's handling of the economy and inflation.
- Agriculture Distress: Agricultural states are being "slammed" by the trade war, necessitating a "second farmers bailout."
- Future Outlook: "Liberation Day 3.0" (Section 301 tariffs) is expected later in the year, promising further confusion and economic drag.
Trade Ideas
"The UK and the EU trade deals are no longer collecting the same revenue... They're collecting quite a bit more [via Section 122 at 15%]." European and UK exporters are facing a sudden 15% price hike to enter the US market. This erodes competitiveness and margins for European large-caps heavily reliant on US consumers. Short European and UK equities exposed to US trade policy. The US could negotiate specific exemptions for allies, reversing the tariff impact.
"We have chaos customs and that's what small businesses and business owners and American consumers are going to have to deal with... voters are not buy[ing]." The shift to Section 122 (15% tariffs) acts as a direct tax on importers and consumers. Small businesses (IWM) lack the supply chain leverage to absorb these costs compared to giants, and the "affordability narrative" suggests the consumer (XLY/XRT) is tapped out and resentful of price hikes. Short US Retail and Small Caps due to margin compression and demand destruction. The administration could pause implementation if political pressure from the House becomes too severe.
"Agriculture states... Chuck Grassley, for example, who are seeing their own constituents just get slammed. We're working on our second farmers bailout." While bailouts provide a temporary floor, the underlying business for US agriculture is broken due to trade wars and lost export markets. "Slammed" constituents implies severe earnings pressure for farmers and equipment suppliers. Avoid or Short the Agriculture complex as trade barriers harden. The "second farmers bailout" could be larger than expected, temporarily boosting sentiment in the sector.
Up Next
This Bloomberg Markets video, published February 23, 2026, discussing EWU, VGK, XRT, IWM, XLY, DBA, DE. 3 trade ideas extracted by AI with direction and confidence scoring.