Supporters of Trump on Wall Street — and they are numerous — were feeling optimistic.
They celebrated a fully engaged president who came into office with promises of a daring agenda focused on tax cuts, deregulation, and purging college campuses of political correctness, including prestigious Ivy League schools many of them attended.
However, the trade war emerged. There is growing concern that Trump is not just disrupting the markets (i.e., their means of making a living), but potentially jeopardizing the economy, his presidency, and the GOP’s control of Congress in the upcoming midterms.
Some fear he might even be paving the way for the return of the “word-salad queen,” Kamala Harris, in 2028.
I’m not saying I subscribe to this pessimism. I remain hopeful that The Donald will uphold his reputation as a dealmaker and ensure that the steep tariffs imposed on every trading partner actually become “reciprocal,” as he indicated during his announcement last week.
The hope is that these tariffs will be adjusted downward amid intense negotiations with nations that stand to lose just as much as we do. Markets could bounce back as quickly as they have been plummeting. The economy might stabilize around his tax cuts and deregulation efforts.
But here’s what the critics keep reminding me: China might endure for a while. They have retaliated with their own sanctions, aiming to cripple our economy while they play the long game. After all, their “president for life,” Xi Jinping, isn’t going anywhere.
Europe may adopt a similar stance, as could Canada and Mexico. They might believe they can extract more concessions from Trump if he is dealing with a severely weakened economy.
Even more concerning, these tariffs might not be viewed as a “reciprocal” negotiating tool for Trump to address our chronic trade deficits. He might truly believe they are beneficial for the economy.
Rigid adviser
Their worst-case scenario has Trump firmly aligned with his ideologically rigid economic adviser, Peter Navarro, a staunch tariff advocate, who has been asserting for years that these levies will magically revive all the lost factory jobs and reshape the economy of 2025 to resemble that of the 1960s.
He is completely in sync with Howard Lutnick, his outspoken (and increasingly irritating) protectionist commerce secretary. Lutnick is a curious figure; a former brokerage executive who only took a strong protectionist position after seeking a position with Trump’s team.
Now, he’s trying to convince the markets that the federal government can somehow cover a $2 trillion budget deficit and stimulate growth through tariffs.
It’s not a good look, or else the markets wouldn’t be so volatile. How can you address a budget deficit with tariffs if those very tariffs temporarily stifle economic growth and lower tax revenues? Note to Howie: Simple logic indicates you can’t.
Another layer of anxiety for them is the perception that Trump doesn’t seem inclined to heed the advice of Scott Bessent, his knowledgeable treasury secretary. Bessent has spent years understanding the complexities of global markets as a hedge fund trader, and he certainly grasps the impact of nations ceasing trade with one another and the violent adjustments required to absorb price shocks from trade barriers: less money flows into their economies, leading to inflation due to higher costs for foreign goods.
Last I checked, that’s termed “stagflation,” and if you grew up in the 1970s like I did, you know it’s unpleasant.
Bessent is monitoring the bond market, observing how the yield on the 10-year bond is dipping below 4%, a clear indicator that some astute investors believe these trade issues will stifle growth. I hear he’s quietly trying to outmaneuver Navarro and Lutnick before the price shocks escalate into inflation.
Clearly, his efforts aren’t yielding results, as the skeptics remind me. Bessent is either sidelined or has been reduced to being Trump’s obedient lap dog.
It’s worth noting that the Wall Street crowd misjudged Trump in the past, so they may not be the most reliable forecasters. They assumed he was all talk regarding trade and would only resort to tariffs as a last resort, perhaps when the economy was thriving.
He didn’t — as we are now painfully aware.
That’s why I still believe Trump will negotiate a deal once he observes more significant declines in the Dow (or even larger drops, like the 2,000-point plunge on Friday) and companies beginning to announce layoffs. A sudden halt to trade could trigger these scenarios. The rational course of action would be to negotiate and claim victory, and Trump loves to win.
Pragmatic dealmaker?
A caveat to my optimism was provided by a friend who knows Trump well. This mutual acquaintance recently explained to me that yes, Trump is the consummate pragmatist and dealmaker, except when it comes to addressing our trade deficits. He resents that countries have taken advantage of us for so long, and over the years he has grown to believe that tariffs can work economic wonders.
That’s why he didn’t choose to negotiate and instead opted for the hammer of tariffs last week. He doesn’t perceive tariffs as a tax on goods that will be passed on to American consumers, leading to inflation, but as a strategy to make U.S. products cheaper over time as domestic production increases.
He envisions Americans as consumers of our own output. In other words, he might not be very inclined to pursue trade peace through negotiations.
God help us if I’m mistaken and my friend is correct.
