It’s not hard to figure out
The Wall St Journal reported on what happened behind the scenes to make Trump blink yesterday. Apparently, he didn’t expect the markets to tank last week the way they did because he’s an idiot and has no idea what he’s doing. He was spooked enough that he started to listen to people other than Lutnick and Navarro and was finally persuaded by Bessent that he should “negotiate” rather than stubbornly insist that this plan was going to make the world bend the knee (or kiss his ass as he said at that GOP event the other night.) That’s stupid too but it bought them 90 days and I guess that’s the best they could do under the circumstances. No word on what happened to the tariffs forcing people to move their manufacturing to the US. I guess that’s off the table now? Whatever …
This is just precious:
Trump played his cards close to his vest. He told advisers that he was willing to take “pain,” a person who spoke to him on Monday said. He privately acknowledged that his trade policy could trigger a recession but said he wanted to be sure it didn’t cause a depression, according to people familiar with the conversations.
Big of him to take the “pain” of a recession and also very thoughtful of him to draw the line at a depression. What a guy.
Banking executives—frustrated at their apparent lack of influence with administration officials—turned to Republican lawmakers in recent days to lobby Trump on the tariffs, according to people familiar with the matter. Their message was that Trump was going to tank the economy.
Trump was also in listening mode. Over the past few days, he has been asking friends and advisers about the markets, and he indicated he was closely watching them. At the White House on Wednesday, he had lunch with financier and investor Charles Schwab and met with Michigan Democratic Gov. Gretchen Whitmer, who had warned that Michigan was already feeling the impact of the tariffs throughout its automotive industry—events that came after his decision but signaled he was widely gathering input.
On Tuesday evening, Trump said that he absorbed the bad news about a plummeting bond market. “I saw last night where people were getting a little queasy,” Trump said Wednesday about the bond market.
Trump, an avid consumer of cable news, said that he watched Dimon’s interview Wednesday morning with Maria Bartiromo on Fox Business. During the interview, Dimon said a recession was a “likely outcome” of the new tariff program, but also defended the idea of some tariffs as a way to improve trade. He urged the president to give Bessent time to make deals. “I’m taking a calm view, but it could get worse,” Dimon said.
Dimon hasn’t had a substantive conversation with Trump for years, people familiar with the matter said. While his appearance on the Fox Business show had been in place for some time, Dimon knew that Trump and his inner circle often watched Fox and that his message would likely get through to them, one of the people said.
Trump told reporters Wednesday he had been thinking about pausing tariffs “over the last few days,” adding “it probably came together early this morning, fairly early this morning.” He said he didn’t consult with lawyers for the wording of his announcement and instead relied on input from Bessent and Lutnick. “We wrote it up from our hearts,” Trump said. “We don’t want to hurt countries that don’t need to be hurt, and they all want to negotiate.”
God help us. This man is more demented by the day.
However, he’s not so demented that he didn’t give his rich buddies and family a little heads up. At 9:33 yesterday morning he posted “THIS IS A GREAT TIME TO BUY!!! DJT” And it surely was. Just a short time later he announced the pause and the markets surged. This was rank market manipulation but I’m quite sure nothing will come of it. There is no accountability for Trump and his buddies. The law is for losers.
Paul Krugman explains in his newsletter today that despite his acolytes hosannas over his alleged strategic brilliance, we all know that he made a massive mistake and the economy is not going to easily rebound from this:
Anyone sounding the all-clear on tariffs, or Trump economic policy in general, should be kept away from sharp objects and banned from operating heavy machinery. We’re in a hardly better place than we were before Donald Trump announced a tariff pause (in a Truth Social post, of course.) In fact, we may be in a worse place.
Let me make four points about Trump’s post-pause tariff regime.
1. Even the post-pause tariff rates represent a huge protectionist shock
2. Destructive uncertainty about future policy has increased
3. We’re still at risk of a major financial crisis
4. The world now knows that Trump is weak as well as erratic
Source: USITC and author’s estimate
He crunched the numbers and found that even with the pause, the effective tariff rate, as you can see in the chart, is almost as high as Smoot-Hawley:
But this still represents a huge jump in tariffs in a US economy that now imports three times as much as it did in 1930. Trump’s post-pause tariff regime remains the biggest trade shock in U.S., and I think world history.
You should read the whole thing but I want to specifically highlight number three because it’s not something I’ve heard much about:
Yesterday I noted that financial markets were showing the telltale signs of an incipient financial crisis. I looked mainly at the breakeven inflation rate, but many other indicators were also flashing yellow. Even yields on long-term federal bonds, normally a safe haven in troubled times, were sounding a warning.
The inimitable Nathan Tankus has a new post explaining why we were and continue to be vulnerable to a new crisis. He explains why the Rose Garden announcement may have been a new tariff-induced “Lehman moment” for the financial system. He explains a lot of stuff that I didn’t know or had grasped only vaguely — in particular, how hedge funds have become key providers of liquidity, even in the Treasury market (via the “basis trade.”) So when hedge funds’ portfolios take a hit from erratic policy, this quickly creates system-wide stress.
I’m planning to write a primer about financial crises and how they happen this weekend.
The level of financial market stress declined somewhat yesterday, but the situation remains fraught. Trump’s next stupid policy move — and there will be more stupid moves — could quite easily tip us over the edge.
Yikes.
I think the scariest thing I’ve heard in all this was Trump saying that he has relied on his instincts and will continue to do so. That’s not good.