Cathie Wood sees potential positives in Trump's 'shock therapy' tariff policy

Investing.com -- Cathie Wood, the founder, CEO, and CIO of ARK Invest, has weighed in on President Trump's tariff policy, which has been a cause for concern among many observers. Wood, however, sees potential benefits from the policy that may not be immediately apparent.

Wood believes that the tariff policy, initially perceived as the most significant and regressive tax increase in US history, could result in positive outcomes. This change in perspective follows President Trump's decision to assign Treasury Secretary Bessent to lead negotiations with allied nations, a role previously held by Peter Navarro and Howard Lutnick.

Wood suggests that the seemingly chaotic situation, based on unclear "reciprocity" calculations, might have been a strategic move, whether premeditated or not, for serious negotiations. These could lead to reduced tariffs and non-tariff barriers, outcomes that would have been unattainable without the initial shock caused by President Trump's policy.

"... what once seemed like a chaotic situation based on incomprehensible “reciprocity” calculations could have been a setup—premeditated or otherwise—for serious negotiations that will lead to lower tariffs and non-tariff barriers, neither of which would have been possible without the shock therapy that President Trump administered," Woods commented.

Elon Musk, who remains influential in the Trump Administration, has been a strong advocate for this solution to the tariff and non-tariff trade barriers that have developed over the past 50 years.

During the past week, marked by extreme volatility in the stock and bond markets, Wood has been working under the assumption that President Trump is aiming for robust economic growth and a strong stock market in the second half of this year and into 2026, ahead of the midterm elections.

Wood also notes that even before the tariff controversy, ARK Invest had been anticipating strong growth to begin sometime in the second half. This expectation is based on the belief that the last part of a three-year rolling recession will result in negative GDP growth for the first and second quarters.

Wood explains that over the past three years, high-end consumers and the government have kept GDP afloat as different sectors of the economy succumbed to the interest rate shock that began in 2022. However, now, both are faltering, with the government entering its first recession in 30 years.

Wood concludes that this situation could provide the Administration and the Federal Reserve with more flexibility to stimulate the economy than most investors might expect. As much of the economy has stalled due to tariff fears, the drop in activity is likely to be more severe than it would have been otherwise, which Wood sees as a strong signal for tax cuts, deregulation, and lower interest rates.