It is in the interest of a president to ensure that the economy and the stock market are strong. However, the Trump administration has done exactly the opposite.
The mood in the markets has been optimistic last week, largely because the president and his advisers have softened his positions, retreating some of his threats to both China and the Federal Reserve.
Periods of relative calm, such as the last one, were a relief, but did not last long, for good reasons. Let us start with the imposition of tariffs by President Donald Trump on countries around the world, especially his decision to start a trade war with China.
Then consider your repeated verbal attacks on the Fed and its president, Jerome Powell, who threatened the Central Bank’s independence.
Add the mass weakening and dismantling of a number of important government agencies, the university financing cut and the open consideration of policies that could move the US dollar and the treasure titles of their place in the world of world finance.
And there is much more. Fundamentally, investors and business executives are nervous, and economists have profound concerns about the potential damage being caused to the United States, as well as countries around the world. I have a strange feeling about what we are seeing.
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It’s like watching a hurricane forming in the ocean that can go directly to New York.
Preparing for climate events like this is important. But this slow storm is something different. It is self -inflicted – initiated by the man in the Oval Hall, which has the power to limit damage if it cannot avoid this completely.
The economic effect
Economists have been striving to understand the logic behind Trump’s policies, many of which seem self -destructive. For example, Trump’s fares, as proposed, would induce a supply shock in the United States equivalent to a folding of oil price, estimated the Peterson Institute of International Economy.
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Oil prices shocks triggered unbridled inflation and often led to recessions. A shock of this magnitude is “something that all governments in the United States have tried to resist, and it’s hard to imagine that it’s something someone would accept,” said Larry Summers, former US Treasury Secretary this month.
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He added that Trump’s tariff policies are “the biggest invitation to the stagflation we had since the 1970s.” Stagflation is a combination of high inflation and low growth. However, fees on the scale proposed by the president could cause this – simultaneously increasing prices while discouraging consumption and investment, and leading people to unemployment.
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With regard to growth, perspectives are much darker than they were before in office in January. The International Monetary Fund (IMF) said on Tuesday that the tariff wars started by Trump would slow down economic growth around the world to 2.8% this year, compared to 3.3% in 2024; In the United States, growth would drop to 1.8% in 2025 from 2.8%.
Tariffs are a consumer tax. Based on the rates in force or proposals by April 15, US consumers “face an effective average rate of 28%, the highest since 1901,” according to Yale’s Budget Lab, a non -party research center.
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Risk for consumption and employment
This year, tariffs would increase prices for the average of families by 3%, the center said, which is equivalent to an average consumption loss of $ 4,900 per family. But many people will reduce spending or replace cheaper products, reducing their costs. Even so, “the increase in post-subjectual price sets out at 1.6%, a loss of $ 2,600 per family,” said Budget Lab.
There will also be an impact on jobs. Due to rates, the unemployment rate by the end of this year should be 0.6 higher percentage point, researchers said, and there may be 770,000 less people on payroll.
But all this is still fluid. After imposing unilateral tariffs – and in some cases using new and questionable statutes that are being contested in the courts – Trump invited countries around the world to engage in negotiations.
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Someday next month, he can declare that commercial conversations were satisfactory and that tariffs will be reduced. At the moment, however, the situation is tense, especially between the United States and China. The United States imposed 145% tariffs on China, which responded with 125% tariffs on American products.
Both countries have additional restrictions on specific items. Unless a rapprochement is soon reached, US-china trade will be severely restricted.
On Tuesday, Treasury Secretary Scott Bessent, and Trump said the trade war would decrease once negotiations began. But spokespersons in Beijing said on Thursday that there would be no conversations unless the United States treated China with respect and dignity. The president clearly expects a new trade agreement with China.
However, he remains a “man of tariffs” who sees more bad than “globalization,” the intertwining of world economies over the decades. Countries around the world, understandably, have begun to rethink their commercial routes, investments and loyalties, doing what they can to protect themselves against the stress that emanates from the United States.
And the markets?
On a fragile base, the US stock market built a modest recovery last week. But US actions are still in a sharp drop this year – while stock markets in many countries in Europe and Latin America are up to two digits.
American titles have been more stable, although income remains stubbornly high. One reason is the assessment in the title market that tariffs could bring the Fed to another battle against inflation.
The consumer price index was at an annual rate of 2.4% in March. He has been well above the 2% Fed inflation target since 2021. On Wednesday, the book Beige of the Fed, his research on conditions across the country, said that because of tariffs, “uncertainty around international trade policy was widespread.” Fed policy formulators will meet next month, but until perspectives are clearer, the Central Bank is unlikely to take measures on interest rates.
A cut in Fed rates would probably animate the stock market and stimulate the economy, but the independence of the Fed can be even more valued. Economists have found that when central banks are well protected against attacks by politicians, monetary policy tends to be more stable and stronger economies.
Thus, on Wednesday, when the president said that his many comments criticizing Powell had been misunderstood, and that he really had no “intention” of trying to shorten Powell’s mandate as Fed President, the stock market recovered. Even at the expense of higher interest rates, it seemed that the traders were pleased that the role of the Fed as a market guardian would remain intact.
The perspective
Assessing where markets go from here is especially difficult because much of this depends on the president. He sometimes softened his voice, but did not disguise his contempt for Powell. And although it has periodically retreated on tariffs, it never renounced its commitment to increasing them.
This leaves markets in a dilemma because Trump is breaking with decades of tradition and economic teaching. The vast majority of economists see fares as reckless and considers the president’s focus on the country’s commercial balance to country as disconcerting.
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To insist that every trade anywhere needs to be balanced, and that imbalances are inherently “unfair,” as the president has done, it is like insisting that something is wrong to spend money on the supermarket and be paid by his employer. Your individual accounts are out of balance: you are spending money on one and receiving money from the other. But who cares? It’s hard to see something unfair to it.
On a national scale, the United States buy things they want or need and cannot cultivate or manufacture internally at a reasonable price, such as bananas or iPhones.
They pay this in many ways – with exports to machinery or software, music or movies, or through investment loans or income, and get huge benefits through this exchange.
Imposing some specific rates for protecting national security can make sense, as well as taking action to restore prosperity in domestic regions that suffered when local industries have failed to compete with foreign companies. But impose the highest rates in more than a century in the world? The consensus is that this approach is reckless.
No wonder markets favorably respond to evidence that tariffs will be traded down. However, uncertainty about Trump’s policies is abundant in financial circles. This begins to appear in calls of corporate gains, with CEOs reducing their projections for next year or indicating that they are less certain about them.
Action analysts were nervous. They markedly downgraded the S&P 500 profits and revenues, according to FactSet, an independent financial research service. CBS News reported that Target and Walmart warned the president that his tariff policy is interrupting the supply chains and can leave the empty stores in the coming weeks.
Market risk perceptions have increased. As a multiple of profits, stock prices fell. The feeling that having US Treasury titles has become riskier can be a reason for the highest income of titles. When investments seem riskier, you want a better price or better income to bear this risk. This is a weight for markets, and although it can be temporarily relieved by softening words, it remains a heavy burden.
Perhaps the most hopeful omen for the markets is that the first year of a president’s term is often the worst for actions and titles.
The theory of the presidential cycle is as follows: newly sought of an electoral victory and far from the next, it is an auspicious moment for a politician to take difficult measures. If you will trigger a recession, do it at the beginning of your first year in office, because there is time to recover.
Soon, however, with the middle -term elections, it will be time to stimulate the economy and the markets. This realization can bring a change in the administration policy.
But I wouldn’t go that far with it. If Trump abandoned all the rates he proposed – and there is no signs that it will happen – the problems he has already introduced would not disappear. In tearing the fabric of international relations, he raised lasting questions about the validity of US promises in trade and diplomacy, and added deep uncertainty to the planning of companies, investors and workers around the world.
He can improve the situation, and I certainly hope he does it, but it’s too late to pretend none of this happened.
This article was originally published in The New York Times.
