Should we view the trade war as a new black or gray swan event?

In his well-known book, “The Black Swan: The Impact of the Highly Improbable,” published in 2007, Nassim Nicholas Taleb explores the concepts of "black swans," "gray swans," and "white swans." Black swans are unpredictable events, while gray swans are recognized occurrences that are often overlooked. In contrast, white swans are predictable and likely to happen.
A black swan is an extremely rare and unpredictable event that can significantly impact the market when it occurs, and it can often be rationalized in hindsight. Historical events that can be classified as black swans include the 9/11 terrorist attacks, the 2008 financial crisis, and the initial phase of the COVID-19 pandemic.
In this context, the answer to my question is yes: April 2, 2025, known as "Liberation Day," is indeed a "swan event," according to Nassim Taleb. However, we must determine whether it is a black swan, a gray swan, or a white swan.
We can confidently eliminate the white swan, which refers to highly foreseeable and expected events with a known timeline or anticipated outcome. For example, earnings reports and filings such as the 10-K or 10-Q are scheduled events. The general format and type of information disclosed—such as revenue, profit margins, free cash flow, and future guidance—are predictable. While there may be surprises regarding a company's performance, the reports themselves are regular and expected occurrences.

At first glance, one might argue that the Trump administration's so-called “liberation day” was a perfect black swan; was it true?

The Trump approach to addressing a highly complex economic issue through simplistic and faulty calculations based on a mathematical formula, which many experts believe has been erroneously interpreted, has led to the imposition of exorbitant tariffs on the entire world, even on isolated islands inhabited solely by penguins (10% tariff on imports from Heard Island and McDonald Islands, remote Australian territories in the Southern Ocean).
This decision triggered a two-day global stock market crash, with the S&P 500 and Nasdaq losing over 10% in just two days, erasing a market value of more than $6.6 trillion.

Source: Created by Fun Trading using StockCharts.

By April 9, the bond market experienced a dramatic reversal, with the 30-year yield rising 54 basis points to 4.92%—the largest three-day increase since 1982—and the 10-year Treasury yield soaring to 4.5%. It was the last straw that broke the camel's back.

Mohammed El Erian, chief economic advisor at Allianz and former boss of the biggest bond manager Pimco, said one reason US borrowing costs had shot up was because there had been an "erosion" of bonds being seen as a safe haven.

On the same day, Treasury Secretary Scott Bessent raised concerns directly with President Trump. Later, President Trump announced a 90-day pause on many new tariffs (excluding those on China) through a post on Truth Social, which effectively calmed the market and sparked an unprecedented rally.

Let's refer to it as the “Liberation Day” event, which we can confidently assert is far from unpredictable. The notion of a “tariff shock” or escalation of a trade war has been on the radar and has been evolving for quite some time. Trump has consistently signaled his protectionist bias, dating back to his 2015-2016 campaign speeches.

Therefore, while the market may have been in denial, we cannot assert that it was oblivious to the risks inherent in such an escalation. These risks were predictable, which contradicts the notion of a black swan. Even if they substantially impacted the market, they could be rationalized afterward, like saying, “We should have seen it coming.”

However, the trend of high tariffs continued and worsened, particularly focusing on China. In response to the Trump administration's 145% tariffs on its imports, China imposed its punitive tariffs of 125% on U.S. goods.

Shortly thereafter, President Donald Trump announced several temporary exemptions to reduce economic disruptions. The exemptions included automobiles, electronics, and goods in transit, leading to an immediate positive reaction in the market following the announcement. Heightening perceptions that Trump's unpredictability and lack of a clear strategy will result in chaos if nothing changes in a few weeks.

On April 16, 2025, President Trump's Treasury Secretary, Scott Bessent, was interviewed about the overall financial situation. He attempted to reassure Wall Street, but the facts are undeniable.

Tech companies, such as Nvidia (NVDA, Financial), are struggling, while gold continues to attract investors who are losing confidence in the economy's strength.

The China tariff is so high that it's practically an embargo, so Trump announced an exclusion for products such as electronics that account for about 20% of Chinese imports.

This trend will likely persist as President Donald Trump gains confidence and adopts a broader approach that some analysts view as “maddening and haphazard” in terms of tariff policy.

We are left with a gray swan with a twist—a close relative I call an orange swan, which adds a new hue to Nassim Taleb's selection.

Therefore, the recent market turmoil can be classified as a gray swan event because it represents an unusual yet plausible and anticipated risk, unlike a black swan event, which is completely unpredictable. Unlike black swans, gray swans do not necessarily lead to a total system collapse. However, they can significantly disrupt the market, leading to sharp corrections, liquidity crises, or panic.

Considering the political context of recent events and their direct correlation with the individual responsible for the significant volatility of the Dow Jones Industrial Average and the Nasdaq Composite, I suggest adding a fourth category to Taleb's swan color classification, which I call an orange swan.

This "orange swan,” triggered by Donald Trump's policy, has introduced considerable uncertainties with profound implications for the U.S. and global economies.

What distinguishes an orange swan from a gray swan?

Historically, black, gray, and white swans have referred to specific events rather than individuals. In the case of President Donald Trump, the gray swan concept is particularly relevant, but it is insufficient to address the entire situation. Given Donald Trump's powerful position, the risk is ongoing and will continue until he departs the White House and retires; therefore, the gray swan is not a specific event but rather Trump himself.

A historical event that parallels the action of the Trump administration on April 2, 2025, is the Smoot-Hawley Tariff Act, enacted by President Herbert Hoover on June 17, 1930. This act was one of the most infamous protectionist measures in U.S. history, imposing higher tariffs on over 20,000 imported goods to unprecedented levels to protect American jobs and industries. It was a bit like trying to kill a hummingbird with a nuclear warhead.

However, the strategy quickly backfired, leading to retaliation from other countries and contributing to the global spread of the Great Depression. Does it sound familiar?

I am concerned that President Trump will likely continue with his tax cuts often favoring the rich, ongoing deregulation, antagonistic actions against long-standing allies (Canada, EU), challenges to the U.S. Constitution, and support for trade protectionism, potentially risking war or economic turmoil with elevated inflation. However, the majority of the US citizens have elected him and knew what he was representing, we must respect that.

Implementing these measures without a solid economic strategy can be detrimental, regardless of political stance. Trump's style is provocative, headline-grabbing, and rooted in power dynamics. It is mostly appealing to a domestic audience, obviously. For instance, Third Way wrote:

Before a dive into what is unpopular, it is important to understand what voters haven't soured on. The mass deportation of 11 million undocumented immigrants appears to be the single most popular thing Trump has done so far. That has the approval of 54% of voters to 43% who disapprove.

Nobel Prize-winning economist Joseph Stiglitz recently stated:

Trump has no economic theory behind what he is doing, and that's what is most disturbing both to me as an economist and to those on the other side of the negotiation. I've talked to some of these people, and they say, We do not know how to negotiate because the other side is not a normal negotiator. Normally, the other side knows what they want. There's a theory about how trade works. That's not true here; it is a different world. Let me give you an example. Trump thinks that trade deficits by themselves, particularly trade deficits in goods, reflect somebody treating us unfairly… But we are in the 21st century, not where we were in the 1950s. Services are the major part of our economy; goods production and manufacturing are 9%-10%...modern manufacturing is robotic so even if we brought manufacturing back, there are not going to be many jobs; that's never, never going to happen…

In conclusion, I view Trump's lasting influence on the market as an "orange swan."

More specifically, the ongoing unpredictability fostered by his approach appears more effective for achieving short-term political goals than for establishing a well-considered economic strategy with long-term benefits. This recurring unpredictability hinders the business world from adapting and thriving, leaving it overwhelmed and paralyzed by uncertainty. The famous US economist Jeffrey Sachs said a few days ago:

When it comes to trade, I do not have to say more than Trump is uniting the world because there is not a single place in the world that is satisfied with this new tariff regime including inside the United States. It is succeeding in stopping the stock market rally and reversing it [...] il is a completely ignorant policy, as far as I am concerned, [...] but I see no merit whatsoever on any count to the protectionism that Trump is trying to bring.

This situation has the potential to trigger a black swan event or a series of gray swan events, which could significantly hinder the global economy. In this context, a black swan event—such as China's invasion of Taiwan—seems increasingly likely, particularly after the U.S. administration has shown hesitance about deploying troops abroad.
Donald Trump's rise was not coincidental; it revealed existing fractures in American society, highlighting significant blind spots in understanding politics, media, and voter frustration that contributed to a resurgence of protectionism and slow global trade growth. This disruption of supply chains led to increased inflationary pressures as goods became more expensive.

On February 26, Trump “refused to make clear his stance on protecting Taiwan from a takeover by China,” which could encourage Beijing to interpret this statement as an opportunity.

Additionally, Trump has suggested that under his leadership, the U.S. may not defend NATO allies against Russian aggression if those allies do not fulfill their spending commitments.

This statement raises concerns in European and U.S. foreign policy circles due to its risks to alliance unity and deterrence, especially in the context of threats like those from Russia.

Additionally, in 2025, President Donald Trump repeatedly asserted that Ukrainian President Volodymyr Zelenskyy was responsible for the war with Russia. Trump has also labeled Zelenskyy a "dictator without elections," echoing Kremlin narratives that question the legitimacy of Ukraine's leadership and receiving praise from Russia's Foreign Minister Sergei Lavrov. Using this rhetoric is likely aimed at persuading Russia to agree to a quick truce, which Donald Trump promised would happen "within 24 hours of being elected."

Trump took office on January 20, 2025, and has served as President of the United States for 90 days. It already feels like a full season of political drama.

As a professional trader, I view volatility as an opportunity, but it's crucial to maintain a strong cash position. If confidence begins to wane, panic selling can quickly follow. The view of America as a protector against tyranny and a guardian of market stability has diminished significantly.

As of April 2025, Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway is holding a record cash reserve of approximately $334.2 billion, the highest cash position in the company's history.

Warren Buffett (Trades, Portfolio) is known for his dislike of uncertainty that he cannot quantify. One of his core principles is to avoid situations where the range of possible outcomes is too broad or difficult to predict.

With Trump, it's not only the policy shifts that create uncertainty; it's also the unpredictability of how those shifts are communicated and implemented. Planning long-term investments is challenging, especially in regulated sectors like healthcare, energy, and finance, where Berkshire has significant exposure.

When the political situation becomes clearer, such as when policies seem more stable, Buffett may be more inclined to utilize his substantial cash reserves. Until then, he will likely remain on the sidelines, observing, waiting, and maintaining enough liquidity to capitalize on the opportunities that arise from the chaos. I would adopt this strategy as well.

First and foremost, it's essential to keep your emotions in check and steer clear of political discussions, as they can be mentally draining and divisive. A trader is a practical individual who should focus on the resources at hand rather than attempting to reshape the world ad aeternam, ignoring fundamental principles. Good luck to everyone!