As the market digested the news of a Donald Trump win and the Dow rally extended to six days, Jim Cramer said investors are now starting to realize there's another negative side to the story.
"I smell a trade war. That is what I think this market has become all about," the "Mad Money" host said.
Stocks initially rallied last week from the prospects of tax cuts and infrastructure and defense spending.
On Monday, however, investors finally realized that President-elect Trump could crack down on trading partners who take advantage of the U.S. market without opening theirs, Cramer said. They are starting to see what it could mean if Trump does more than just talk tough about imports and dumping.
"We are beginning to witness the other side of the trade of the Trump rally and it might hurt as many companies as it helps," Cramer said.
Stocks showed signs of weakness when technology plays fell out of favor and banks and domestic stocks rotated in. At the time, Cramer thought it might have just been managers raising money to buy winning stocks.
News out of China changed Cramer's mind when he read a story in the Global Times, which called Trump naïve if he started a real trade war with China. It said that if a trade war was launched, Boeing orders would be replaced by Airbus, auto and iPhone sales would have setbacks, and U.S. soybean and maize imports would be halted.
With 1.4 billion consumers in China, many U.S. companies could see their earnings slammed hard in a trade war.
Cramer questioned whether President Trump will follow through on all of candidate Trump's rhetoric.
Former Nucor CEO Dan DiMicco is one of Trump's closest advisors. Cramer has interviewed DiMicco many times and says DiMicco believes China has been getting a better deal over on the U.S. for ages.
"He's telling Trump to be more concerned about how Chinese trading chicanery impacts workers than about whether we lose their shampoo and soda market. In other words, a trade war might really be in the cards," Cramer said. "That is certainly what the stock market was saying today."
Shares of Apple fell more than 2 percent on Monday, and pulled down the rest of technology with them. It was also another tough day for FANG — Cramer's acronym for Facebook, Amazon, Netflix and Google, now Alphabet. General Motors also fell, even after it was a winner last week.
On the flipside, Boeing actually had a nice rally on Monday. FedEx, which needs strong Asian markets, rallied too.
"I think it is worth pointing out that, after today, we have a newfound risk to this market, one that can only be described as the big downside of helping to keep jobs here in America," Cramer said.
Companies that exported jobs overseas need those overseas markets to make profits.
Ultimately, if Trump sticks with his campaign promises on trade, Cramer said to prepare for a brave new world.