Trump bets the farm to win small pots, but markets may soon call his bluffs

(Originally published Feb. 4 in “What in the World“) Trump held the economy hostage to win some unrelated concessions from two of his country’s largest trade partners.

U.S. President Donald Trump declared partial victory and postponed tariffs on Canada and Mexico by a month after both countries promised to act against fentanyl imports and illegal immigration to the United States. Canada agreed to appoint a “fentanyl czar,” call drug cartels terrorists, and create a joint, organized crime strike force. Both Canada and Mexico agreed to station 10,000 personnel along their U.S. borders to police them. That works out to one Mexican soldier ever 300 meters of border, and one Canadian every 900 meters.

Canada and Mexico also appeared to have agreed to postpone the retaliatory tariffs they said they would impose on the U.S. Trump’s increased tariffs on China are still in force.

The consequences of imposing tariffs as a negotiating weapon, meanwhile, may not go away anytime soon. If nothing else, the policy uncertainty Trump has created by using executive orders as trial balloons may dampen investment and spending, as well as confidence in the U.S. government’s financial obligations. Some are concerned that efforts by Trump donor and adviser Elon Musk, who heads the White House’s self-appointed “Department of Government Efficiency,” to meddle in the Treasury’s payments system could further undermine faith in the U.S. government’s ability and willingness to pay its debts.

Trump now also risks becoming the man who cried “tariff.” That is to say that tariff threats may lose their potency. Trading partners may conclude that Trump’s tariff threats won’t ever go away no matter what they concede—so why concede at all? And investors may conclude that Trump isn’t really stupid enough to hurt the U.S. economy by imposing them, thus eliminating his ability to move financial markets with his threats to do so.

Trump may think being an unpredictable negotiator willing to place high-stakes bets to wring concessions makes him a powerful dealmaker. But being a mercurial, capricious policymaker makes him a reckless leader.

Climate change threatens to boost the cost of insuring American homes by almost 30% in the next 30 years, according to a new study by First Street reported in The Wall Street Journal. First Street says those rising premiums will lead to a $1.47 trillion drop in U.S. home values. While falling values and rising premiums are prompting people to move away from the most vulnerable areas of the country, Americans are still chasing economic opportunities to move into other vulnerable areas. It’s not clear whether the report’s estimate of declining home values also factors in the likely increase in home values in areas less vulnerable to climate change.