Someone hit my daughter Jennifer’s Nissan Pathfinder yesterday in a parking lot and fled without leaving a note. Repairing the damaged side panel will cost about $1,300. “I guess you can’t trust anyone,” she told me.

I rebuked her: “I taught you better than that.”

Before I get to Wednesday’s market re-cap, a few words about trust and why it matters, especially to investors.

In today’s world, it often seems that nice guys finish last. But the fact is, humans value trust and cooperation, not to be “nice” but to maintain a functioning civilization.

Trust is not merely a soft, nice-to-have social virtue but rather it’s a hard-edged economic driver. When trust goes down in a personal relationship, on a team, in a company, or among nations, transactional efficiency declines and costs go up. But as trust increases, productivity speeds up and profits grow.

Think about your own job, whatever it happens to be. If you trust your colleagues, aren’t you happier at work, which in turn makes you more productive and creative? And if trust is lacking, you probably waste a lot of energy looking over your shoulder and doing less than your best.

Which brings me to the global trade war. The tariff battle continued today, further undermining the one thing that holds the global economy together: trust in U.S. leadership.

The Dow Jones Industrial Average spent most of the session in negative territory but eked out a small gain in the final minutes of trading. The S&P 500 fell and the tech-heavy Nasdaq got crushed.

New trade levies loomed and trade mistrust deepened.

Facebook (NSDQ: FB) and Twitter (NSDQ: TWTR) executives faced a hostile Congress on Wednesday to testify on the issue of fake news and similar controversies. FB and TWTR shares fell 2.33% and 6.06%, respectively, as their management was de-FAANGED by lawmakers for not doing enough to safeguard their social media platforms from foreign attempts to influence U.S. elections. Internet stocks as a whole were dragged down as well.

Trade headwinds weighed on emerging markets, which extended yesterday’s losses. The benchmark iShares MSCI Emerging Markets ETF (EEM) fell 1.42% today and is down 4.17% year to date. The CBOE Volatility Index (VIX), aka “fear gauge,” jumped 3.95%.

Public comment periods tend to be pro forma exercises and the one for new U.S. tariffs against China is no exception. The period ends tomorrow, after which time Trump is expected to slap an additional round of tariffs against $200 billion worth of Chinese goods.

Strong corporate earnings this year have mostly offset the negative consequences of tariffs, but the trade war has progressed from hostile rhetoric and posturing to tangible impediments to profitability.

Manufacturers are reporting higher input costs and lower demand because of tariffs, compelling many of them to lower earnings guidance for the third quarter and full-year 2018.

The biggest loser in this trade war? As the chart shows, probably America.

Investors have consoled themselves by assuming that most of Trump’s tariff threats have been negotiating tactics to intimidate trading partners into making concessions. This self-delusion is finally giving way to the realization that U.S. tariffs are real and destructive.

Export-dependent emerging markets, as well as major exporting companies in the developed world, are getting clobbered by these trade uncertainties. Analysts have revised downward their expectations for global growth.

The U.S. and Canada resumed discussions Wednesday on overhauling the North American Free Trade Agreement (NAFTA), but I don’t expect any progress.

Ottawa won’t back down on several crucial issues, such as diary industry protections, despite threats from the White House. Once a loyal ally, the Canadian government no longer trusts the U.S.

Behold, the almighty dollar…

One asset benefits from all this uncertainty: the U.S. dollar.

Investors are fleeing to the safe haven of the dollar, pushing down vulnerable emerging market currencies. Another tailwind for the dollar is rising interest rates, with the Federal Reserve planning to hike rates again this month.

The greenback has soared 8% since March and currently hovers at two-week highs. A stronger dollar hurts emerging markets, which labor under a mountain of dollar-denominated debt.

Emerging market currencies are experiencing a bloodbath, encompassing the South African rand, the Turkish lira, the Argentine peso, the Indonesian rupiah, the Mexican peso, and the Russian ruble.

This domino effect is how contagion is born. We’ve seen it before.

Investors in emerging market securities looking to protect their gains should put in stop-losses, or sell. The emerging market decline is far from over.

Also reduce your exposure to export-dependent large-cap industrial stocks. Now’s a good time to pocket at least partial profits from your biggest winners. In this dicey global environment, your paper gains could easily evaporate. Trust me.

Wednesday Market Wrap

• DJIA: 25,974.99 +22.51 (0.09%)
  
• S&P 500: 2,888.60 -8.12 (0.28%)
  
• Nasdaq: 7,995.17 -96.07 (1.19%)
  

Wednesday’s Big Gainers

• GameStop (NYSE: GME) +15.80%

Video game retailer exploring sale.

• Sparton (NYSE: SPA) +12.43%

Defense electronics maker gets access to Pentagon bid.

• Acorn International (NYSE: ATV) +9.75%

China-based marketing company impresses on earnings.

Wednesday’s Big Decliners

• Mercantil Bank Holding (NSDQ: MBNAA) -56.49%

Wall Street turns bearish on bank holding firm.

• Sangamo Therapeutics (NSDQ: SGMO) -23.62%

Gene therapy player faces growing competition.

• Tabula Rasa HealthCare (NSDQ: TRHC) -9.33%

Analysts say health care IT firm paid too much to acquire two software firms.

Letters to the Editor

“Why is a strong dollar bad for some of my blue-chip investments?” — Georgia K.

A strong U.S. dollar can hurt large-cap multinational exporters because it makes their goods more expensive overseas. If the dollar continues to appreciate, it could also cause long-term harm because those overseas consumers will begin to permanently turn away from American brands.

Questions about how the strengthening dollar affects your portfolio? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.