MSNBC's Chris Hayes had a nice way of describing Trump's 90-day pause on his tariffs today: it was like an arsonist setting a building on fire, then returning to the scene of his crime and telling bystanders that it was good only two-thirds of the structure was destroyed. (Not an exact quote, but I got the basics right.)
In the first four business days after Trump revealed his totally screwy "reciprocal" tariffs on almost every country, including those that have zero tariffs on United States imports, our stock market graded his tariff policy with a big F for fail by sinking like a stone, eliminating over $6 trillion in wealth. Today the market gained around a third of that back.
The market was poised for a more dangerous decline to mark the tariffs going into effect. What freaked out investors, Trump's advisors, and eventually Trump himself was how the bond market was reacting to the tariffs.
Usually when stocks have had a large drop, the price of Treasury bonds increases due to investors seeking safety and a guaranteed return. But today the yield of the 10-year Treasury bond increased substantially due to a marked decline in the price of the bond.
That's very unusual. Basically it meant that around the world, including here in the United States, investors were losing faith in our nation. Instead of being a safe haven, government bonds were being treated as if they had been issued by a Third World developing country.
A New York Times story describes how Trump realized that he needed to change course of tariffs, fast.
For the past week, President Trump has been urging calm in the face of the financial chaos that he created and resisting calls for him to rethink his approach.
“I know what the hell I’m doing,” he told Republicans on Tuesday as the massive tariffs he had imposed sent global markets into a tailspin. “BE COOL!” he said in a social media post on Wednesday morning. “Everything is going to work out well.”
At 9:37 a.m. Wednesday, the president was still bullish on his policy, posting on Truth Social: “THIS IS A GREAT TIME TO BUY!!!”
But in the end, it was the markets that got him to reverse course.
The economic turmoil, particularly a rapid rise in government bond yields, caused Mr. Trump to blink on Wednesday afternoon and pause his “reciprocal” tariffs for most countries for the next 90 days, according to four people with direct knowledge of the president’s decision.
...Mr. Bessent played a significant role in steering the president toward the pause. But the real credit, Mr. Trump’s advisers admit privately, should go to the bond markets. Mr. Trump’s decision was driven by fear that his tariffs gamble could quickly turn into a financial crisis. And unlike the two previous crashes of the past 20 years — the global financial crisis of 2008 and the pandemic of 2020 — this crisis would have been directly attributable to only one man.
...The tariffs had triggered a sharp sell-off in U.S. government bond markets and the dollar, which investors usually see as safe-haven assets in times of turmoil. After Mr. Trump announced the new tariffs last week, economists on Wall Street quickly raised their forecasts for inflation and lowered those for growth, with many warnings about a recession. Trillions of dollars of stock market value vanished in a matter of days.
At 1:18 p.m. on Wednesday, Mr. Trump announced on Truth Social that he would back off the “reciprocal” tariffs for 90 days while increasing tariffs on China to 125 percent. The pause, along with leaving a 10 percent tariff rate in place for most countries, was a version of what a number of people had urged Mr. Trump to put in place for days.
Problem is, now the United States still has insanely high tariffs that will lead to higher inflation, job losses, supply chain problems, and diminished confidence in the United States as a reliable trading partner.
Trump claimed that his tariffs were necessary to bring manufacturers back to the United States from overseas. But few corporations are going to be willing to spend big bucks on building a new plant when Trump clearly has no idea what he's doing. He could reinstate the original tariffs at any time, or he could do away with raising tariffs at any time.
Chaos isn't what American businesses were looking for from the Trump administration. They wanted a favorable business climate marked by long-term dependability. Instead, they got Trump's whims. He simply feels that other countries have been ripping us off through trade imbalances, even though there is little hard evidence of this.
The stock market probably will have lots of ups and downs as Trump's negotiations with other countries move forward over the next 90 days. I expect that there will increasing numbers of stories about disruptions caused by his 125% tariff on Chinese exports.
Almost all of my clothes are made in China, Vietnam, or some other Asian country. They're high quality and reasonably priced. I don't want to pay more for clothes, or anything else, just because Trump has had an obsession with tariffs for many years.
Unfortunately, that obsession hasn't led to knowledge about how tariffs work. Trump is still spreading lies about tariffs imposed by the United States being paid by foreign countries. In truth, tariffs are paid by the importer, an American company, who almost always raises prices to compensate in whole or in part for the cost of the tariff.
Another New York Times story is called "An Experiment in Recklessness: Trump as Global Disrupter." It ends with:
All this suggests a failure to look around corners — which is hardly new in the American presidency. Herbert Hoover signed the Smoot-Hawley tariffs in June 1930, thinking they would help create jobs, then went fishing. They instead accelerated the Great Depression.
The White House insists this time the result will be the opposite. It is a huge bet, one on which not only Mr. Trump’s presidency but the fate of the global economy rests. And no one can predict where the bottom is for the markets, or where the top is for the escalation with China.
“The speed and chaos surrounding President Trump’s policy rollout have created extraordinary global economic disruption; nobody alive has ever witnessed self-induced volatility on this scale,” Ian Bremmer, the founder of the Eurasia Group, a consulting firm, wrote this week.
At the beginning of the year, the United States had the strongest economic position of any of the Group of 7 nations, he noted.
Now, he concluded, “President Trump has become the principal disrupter.”
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