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Why Stock Markets Are Freaking Out About Donald Trump

Markets hate surprises, and they haven’t been dealt a shock like Donald Trump’s late-game comeback since the days of the financial crisis.

Dow futures have fallen more than 800 points in the hours after U.S. polls have closed, indicating the skepticism and uncertainty with which global investors greet a possible Trump Administration.

Not only was Trump’s increasingly likely victory unexpected, but it puts into question what American economic policy will be for the next two years, in ways that are particularly unsettling to investors. As Brian Gardner, an analyst with the investment bank Keefe Bruyette & Woods wrote in a note to clients this week “the election of Donald Trump would surprise the markets” and lead to a “knee-jerk” selling of assets. “We think investors would be spooked by Trump’s anti-trade rhetoric and worry that his trade policies would negatively impact the U.S. economy,” he continued.

But there’s reason to think the selloff might be temporary. Trump, if elected, would be leading a united government of Republicans, who are largely intent on lowering taxes. Even if they don’t have the political will to pay for those cuts with cuts to entitlements, the subsequently larger deficit would be a boon to short term growth and cheered by markets, despite the long term budget impact.

That said, the investors will likely remain worried about how aggressively Donald Trump approaches the question of trade. Economists like Mark Zandi estimated that if Donald Trump instituted large tariffs of 35% or more with countries like Mexico or China, that it could drag the country into a trade war that would ultimately lead to a deep and painful recession.

But Zandi’s analysis should be taken with a grain of salt. The fact is that economists have little data to draw on when it comes to the effects modern, large economies engaging in competitive protectionism. Much of the economic effect depends on our trade partners’ reactions to Trumponomics, which are impossible to know.

And that’s the big problem. Until we know what a potential President Trump would actually do on trade, immigration, and taxes, investors will remain extremely nervous, and market extremely dangerous.