Forget economics. It’s the rules of battle investors should pay attention to now that President Donald Trump has launched a full-bore trade war against enemies and allies alike.

On Friday, China announced 34% tariffs on the U.S., causing a stock market already reeling from Trump’s announcement to take another leg lower.

“Liberation Day,” as Trump dubbed the announcement of broad tariffs on U.S. trading partners, was the moment skirmishes morphed into a full-blown conflict. The U.S. has set a baseline levy of 10% on all trading partners, with higher penalties on countries deemed the worst offenders by the administration. The final numbers aren’t based on tariff levels other countries have placed on the U.S., but on a formula involving Greek letters, trade balances, and lots of make-believe.

While trade wars don’t involve armies and bloodshed, some of the same rules apply—especially when it’s a war of choice. Strengths need to be assessed, allies cajoled, goals set, and preparations made. When done right, victory can be reached with relative ease and result in an increase in standing. When poorly planned, strengths turn into weakness, quick victories become battles of attrition, and unintended consequences can last for years. The worst defeats come when a country overestimates its own strength and its opponents’ weakness—think Napoleon invading Russia while engaged with the United Kingdom—and finds itself overstretched and outmatched.

A trade war isn’t much different. Targeting a country for unfair practices in a unified front with allies makes sense, and the tariffs placed on China during Trump’s first term, though imperfect, fall into that category. Liberation Day, however, was akin to launching an attack on everyone all at once. Now the U.S. is fighting a trade war on all fronts, while its opponents are only fighting the U.S. The risks far outweigh the rewards—and the risk for the stock market remains to the downside, even with the S&P 500 index already down 17% from its Feb. 19 high.

“When you engage in a global fight, where the other countries are only engaged in a fight against you, it’s much more asymmetric,” writes BCA Research strategist Peter Berezin, who set a 4450 target on the S&P 500 at the end of last year, the lowest on the Street.

Many observers point to the possibility of negotiations that bring the tariffs down—and end the selling—even though it’s unclear whether the president is even willing to do so. (He also posted a video on Truth Social saying he’s intentionally crashing the market.) U.S. trading partners might not want to negotiate either, particularly given how popular going up against Trump seems to be. From France’s President Emmanuel Macron, who called for suspending investment in the U.S. by European companies, to Canada’s Prime Minister Mark Carney, bashing Trump has been good politics. What’s more, negotiations won’t favor the U.S., even if Trump wants to engage, explains 22V strategist Dennis DeBusschere. “We are not geopolitical game theorists, but the design of the U.S. tariffs is so poor that it puts the U.S. in a weak negotiating position,” he writes.

The counterattacks have already started. On Friday, China announced 34% tariffs on the U.S., causing a stock market already reeling from Trump’s announcement to take another leg lower. Former allies, too, are acknowledging that what existed before has ceased to exist. Canada’s Carney, who has already matched Trump’s tariffs on cars, said 80 years of U.S. global economic leadership is over. “While this is a tragedy, it is also the new reality,” he said.

It’s at moments like these that investors look for outside help to shore up markets. When stocks cratered due to the lockdowns imposed because of Covid-19, the Federal Reserve stepped in by cutting rates and making sure financial institutions wouldn’t face a liquidity squeeze. The ensuing rally was breathtaking and, coupled with generous spending by the federal government, prolonged. Similarly, a near bear market in 2018 caused Fed Chair Jerome Powell to blink—and set the S&P 500 up for a great 2019.

The market is already pricing in more Fed cuts this year than it was just a week ago, including a 100% chance of one at the June Federal Open Market Committee meeting. If the stock market continues to fall like this, the Fed could even decide to lower interest rates before its May meeting, says James Stack, founder of InvesTech Research.

The only problem: While cuts could cause the market to bounce in the short term, it isn’t unprecedented for them to have little impact in the medium term. Stack points to the 2008-09 financial crisis, which occurred even though the Fed started lowering rates in September 2007. “If the market slides too fast, I wouldn’t rule out an emergency pre-emptive cut,” he says. “I wouldn’t count on that stabilizing the market.”

It didn’t have to be this way. While the economy wasn’t perfect, it was holding up well heading into the New Year. And Friday’s payrolls report, which showed an increase of 228,000 jobs in March, suggests that the activity is still in a good place.

Few expect it to remain there. The latest numbers don’t capture the latest tariffs—or companies’ response to them—but souring sentiment suggests that executives were locked and loaded and ready to act. On Thursday, Chrysler parent Stellantis temporarily laid off workers in U.S. plants that assemble cars from parts made in Mexico and Canada, and other car makers could follow suit.

“It’s a pity to see the administration take a perfectly good economy and hit it with a wrecking ball,” says Ed Yardeni, president of Yardeni Research.

And what a wrecking ball it is. The moves will bring tariffs up from 2.5% at the end of 2024 to more than 20% when they go into effect. That is the highest levels since the 1930s, when the Smoot-Hawley Tariff Act helped turned a recession into the Great Depression.

The UBS economics team believes that U.S. gross domestic product could take a 1.5-to-two percentage-point hit due to U.S. tariffs, while inflation could rise to near 5%. “The magnitude of damage they could cause to the U.S. economy makes one’s rational mind regard the possibility of them sticking as low,” UBS strategist Bhanu Baweja writes of the tariffs.

While President Donald Trump called it Liberation Day, others have dubbed it “Hibernation Day,” “Ruination Day,” or even “Obliteration Day.” We’ll just call it the next step on the way to a bear market, which is almost surely on its way. It’s already arrived for the small-cap Russell 2000 index, down 25% since hitting a 52-week high on Nov. 25, fell into one on Thursday, while theNasdaq Composite, off 22% since Dec. 16, joined it on Friday. The S&P 500, at 5238, would need to drop another 3.9% to 4915 to reach the 20% decline needed to call it a bear market. At this rate, it could get there next week.

The problem with bear markets, at least the ones that aren’t immediately headed off with massive Fed action and government spending, is that they can be long and arduous. If what is happening now is like the pandemic selloff, the rebound could start in days. But the average bear market lasts nine months and can be even longer if the conditions are ripe. The S&P 500, for instance, didn’t bottom until March 2003 after peaking in March 2000. “If it’s a bear market in the Russell, it will be a bear market in the other indexes,” InvestTech’s Stack says. 

Other metrics, too, suggest that investors haven’t gotten risk-averse enough just yet. The S&P 500, at 19.5 times 12-month forward earnings, is down three points from its February peak, but is only back to where it was in January 2024. Earnings estimates for 2025 have started coming down, but still suggest double-digit growth this year. Technical indicators, too, point to more selling to come: Twenty-seven percent of the stocks in the S&P 500 continue to trade above their 200-day moving average, above the 20%-or-lower level that would signal a washout.

Options markets are getting closer to sending a buy signal, but are not quite there yet. The Cboe Volatility Index, or VIX, hit nearly 46 on Friday but is still below the 66 peak it reached during last August’s Japan-inspired selloff. Implied correlation—a measure of stocks’ propensity to trade in sync with each other—has also risen but could rise even more, suggesting that even defensive sectors like staples and healthcare, which have held up so far, could drop as well, says 22V’s DeBusschere. “It’s just safer to reduce risk and be on the sidelines,” he writes.

In other words, it’s time for risk management, not panic. Stack, who had moved his clients into portfolios consisting heavily of cash, healthcare, dividend payers, and staples before the tariff announcement, recommends making changes if the idea of another 10% decline in the stock market makes an investor uncomfortable. “Don’t put cash under a mattress and hide,” he says. “Reduce exposure so you can sleep at night.”

And it will be tempting for investors, conditioned to buy the dip, to jump in at the first sign of a bounce. But unless something changes materially, investors should fight the temptation to chase the market higher. “Everyone says buy the dip, but not now,” says Bill Strazzullo, chief market strategist at Bell Curve Trading. “This isn’t the time for it.”

We’ll be waiting for armistice day.