In the past, the only constituency that President Trump has sometimes heard has been our stock market. Well, he has spoken, falling 10.5 percent in one of the largest two -day market in decades.
In the 50 years that I have been immersed in markets and economic policy, I have never witnessed a signatory economic policy initiative that met such an unpleasant criticism. What is worse, the damage was completely self -inflicted.
Why such a reaction? One reason why the S&P 500 fell was that the rates that Mr. Trump were implemented were much larger than investors expected. (Give the White House a F for not preparing the market to wait.
While Trump doubled, stating that “my policies will never change,” the president of the Federal Reserve, Jerome Powell, was delivering his own bomb: given the highest tariffs of the predicted, there was probably greater inflation and slower growth, he said. That is drastically different from just a couple of weeks ago, when Mr. Powell described the potential impact of new tariffs on “transient” prices.
The business community, which on my own greatly supported Mr. Trump in the elections five months ago, seems stunned. Few have spoken publicly, but the round business table, the main corporate trade association, warned of Wednesday that universal rates are “the risk of causing important damage to manufacturers, workers, families and US exporters.”
In private, several executive directors told me that they recognized that imposing tariffs, as well as Trump’s restless support to them, was a potentially cataclysmic mistake. “Few of us imagine that I would go so far,” one told me. “I could well knock down the economy and he himself.”
Business leaders who support Trump with whom I have spoken in the last two days do not yet regret their votes, mainly due to their intense disgust (if not hate) for the Biden-Harris administration. And they are still widely supported by the efforts of the technological billionaire Elon Musk to reform the Federal Government, even if they recognize that their Dogs team can be too far in its expense and personnel cut.
But I wonder how other important leaders who support Trump whose prices of the shares have been particularly affected, such as Stephen Schwarzman, executive director of Blackstone, the investment group (less than 15 percent in two days), and Safra Catz, executive director of Oracle, the database company (less than 12 percent).
Mr. Trump’s actions are not the only problem. Almost important is the lack of clarity as to which policies is chasing and why. Sometimes, Mr. Trump implies that the purpose of tariffs is to recover manufacturing, which suggests that they will remain indefinitely. On other occasions, he suggests that the objective is to negotiate rates reductions by other countries (although much of what Mr. Trump states about his tariffs is inaccurate).
Hitering has a real toll. I see this of my role as a professional investor. How do we evaluate a company that imports goods or participates in international trade? We look for a lower price, or we squeeze our teeth, or pass the opportunity. As a result, our investment rhythm has slowly slowed this year.
And we are not just us. In the first quarter of the year, the number of fuses and acquisitions recently announced fell to its lowest level from the financial crisis. “People are looking but not clenching the trigger,” a leading investment banker told me. Capital offerings have become equally challenged; Multiple companies that plan to make public have postponed their fundraising since Wednesday.
Even experts inside Trump’s bubble are baffled. In a recent private call with investors, a senior official in the first Trump administration predicted with confidence that the cars from Mexico would receive a more favorable treatment than those originated in Canada. The next day, Mr. Trump imposed the same duties to vehicles from the two countries.
The perspective is bleak. Prediction markets put the probabilities of a recession at 50 percent or even a bit higher. And although job figures published on Friday were solid, the Conference Board recently reported that consumer expectations for the economy reached its lowest level in 12 years, while early inflation during the next year (measured before the announcement of the rate) has increased to 6.2 percent. National manufacturing production is now hiring. Standing, that particularly painful combination of inflation and economic stagnation, has become the slightest damage that we probably experience.
In a normal world, when an economy hesitates, the eyes turn to the Central Bank for help, in the form of reductions in interest rates. But progress in inflation has stagnated, which makes it difficult for the Fed to go to the rescue. And the new tariffs will only worsen inflation.
Many entrepreneurs and investors still expect Trump to recognize the ravages he is creating and relieves his tariffs. But so far, it does not seem worried. And that may be our greatest concern of all.
