Tariff reversal and market rally just latest twist in Donald’s Big Adventure
(Originally published April 10 in “What in the World“) Trump has subjugated the stock market.
Wednesday morning, Trump later told reporters, he watched JPMorgan CEO Jamie Dimon tell Fox Business viewers at about 8:35 a.m. that Trump’s tariffs were likely to pull the U.S. economy into recession and urged Trump to allow time to make better deals with trading partners. At 9:37 a.m., Trump posted to his Truth Social platform: “THIS IS A GREAT TIME TO BUY!!!”
At 1:18 p.m., Trump posted that he was pausing his disastrous “reciprocal” tariffs on all nations for 90 days to allow time for negotiations with those that were willing to discuss making concessions. While Dimon’s advice may have moved him, fears of a revolt by Republican legislators watching their portfolios plummet may also have helped. At least a dozen Republican congressmen had reportedly weighed backing a Democratic-sponsored bill to restrict the president’s ability to impose tariffs.
Many also point to the sudden slump in U.S. Treasuries, caused as Trump’s dollar-destroying policies exposed massive leverage imperiling the market for Washington’s rising debt. “The bond market is very tricky,” Trump told reporters later Wednesday in a bit of instant revisionism when asked if bonds were what swayed him. “I was watching it. But if you look at it now, it’s beautiful. The bond market right now is beautiful. I saw last night where people were getting a little queasy.”
Treasury Secretary Scott Bessent went even further, suggesting Trump had planned the reversal all along as a way to catch China out: “This was his strategy all along,” Bessent told reporters. “You might even say that he goaded China into a bad position.”
Whatever. Investors were giddy with relief. In the next sixty seconds, the S&P500 surged 2.6%, launching a one-day rally that would send it up 9.5%. The Nasdaq more than 12%.
This “historic” rally is impressive until you realize that it still leaves the S&P500 down 4% since last week and 10% since Trump’s inauguration. And even with the latest pause in tariffs, we’re still not even back to where we were just over a week ago, when on his self-proclaimed “Liberation Day,” Trump announced the reciprocal tariffs—all based on plugging miscalculated data into a bogus formula to achieve a dubious outcome. As former Deutsche Bank economist Michael Spencer points out in his own newsletter, Trump’s 25% tariffs on aluminum and steel, cars and car parts remain, his tariff on goods from Canada and Mexico that don’t comply with the US-Mexico-Canada trade agreement, and his tariffs on semiconductor appear to remain in place.
In fact, things are still much worse on the tariff front, and thus currency markets are suggesting the relief rally may be short-lived. Trump’s across-the-board, minimum 10% tariff on all countries’ imports stays in place.
Then there’s China, the largest exporter to the U.S. China not only refused to negotiate, it retaliated. So Trump maintained his reciprocal, 34% tariff against China and imposed an additional, 50% retaliatory tariff against China’s retaliatory, 34% tariff on U.S. goods. U.S. tariffs on Chinese imports still now stand at roughly 125%. China responded by saying it was raising its tariff on U.S. goods another 50%, to 84%.
Trump has already been promising to announce a new tariff on pharmaceutical imports and boasted that he has threatened the world’s leading semiconductor maker, the Taiwan Semiconductor Manufacturing Company, with 100% tariffs on chips to the U.S. if it doesn’t build plants in the United States.
Trump says China is eager for a deal. But Beijing may be about to unleash some of its own trade shock and awe. While Trump and his advisers believe curtailing Chinese imports with a tax on American consumers hurts China more than the U.S., Peterson Institute for International Economics President Adam Posen argues the obverse: taxing Americans out of access to key materials and products China controls actually hurts the U.S. more than China. “Washington, not Beijing, is betting all in on a losing hand,” Posen writes.
Back in February, Columbia University researcher Edward Fishman described how China has carefully identified where in the global supply chain it can exert the most pressure on U.S. companies and the economy with specific sanctions and embargoes. Beijing appears likely to restrict supplies of vital minerals it dominates such as antimony, cobalt, gallium, germanium, graphite, and lithium to the U.S. industries that rely on them to make the chips that guide sophisticated American weaponry. China is, according to The Wall Street Journal, also working on ways to compelling U.S. companies in China to surrender more intellectual property.
It also wasn’t clear whether Trump’s reversal could stop the European Union’s vote to retaliate. Member states on Wednesday approved a punitive, 25% tariff on many U.S. imports.
Perhaps more deadly for the U.S. economy is that Trump’s latest about-face only increases the unpredictability vexing American boardrooms. Businesses cannot plan investment when the economy and finance are being held hostage to the whims of a lunatic who imposes devastating tariffs one day, then a week later rescinds them as part of a negotiating ploy.
But the upshot of the rally is that Trump will increasingly be able to talk the stock market up or down. Few serious investors, after all, can afford now not to tune in to his Truth Social account so they can act when he next telegraphs his latest policy switcheroo.