Global markets have been in upheaval since President Trump’s Liberation Day, which slapped tariffs on just about all trading partners.
Volatility has been spurred by market rumors as the message from the White House has been mixed. At times, it appears that the Trump White House is not interested in making any deals with trading partners, while making bombastic declarations that manufacturing will immediately move back to the US. At other times, it appears that “50 to 70” trading partners are ready to make a deal, perhaps eliminating all trade barriers and tariffs. This would be a big win for the President.
Infighting among the Republicans has emerged regarding the trade ambitions. First buddy Elon Musk recently hammered Presidential trade advisor Peter Navarro on X, effectively calling him an idiot. Navarro is widely seen as one of the architects of the ambitious trade policy enacted by the President.
Some Republicans are looking to limit Trump’s authority in making trade deals, thus undercutting his tariff policy.
Senator Ted Cruz believes the President should take the win and sign improved trade agreements.
“Make a deal, and then take the deal. The reciprocal lowering of tariffs at home and abroad would be a huge win for President Trump, Texas, and America.”
Writing on WSJ.com, Norbert Michel of Cato pointed out that today, the US makes more today with fewer workers due to the advancement in technology.
He states that the middle class has “thrived over the past 4o years as householders are earning more than ever:
“In fact, Americans of all economic backgrounds have done well. The share of households earning more than $100,000 has tripled over the past five decades, and the share earning less than $35,000 fell by 25%. For most of this period, workers in the bottom 10% of income distribution experienced stronger wage growth than those with higher incomes.”
Michel believes that manufacturing is doing better than ever, and returning to the factory towns of the 1950s is the wrong goal.
Hedge fund CEO Bill Ackman believes there should be a pause before Trump puts the hammer down. This would provide time for trading partners to cut a deal without the damage. If these countries do not negotiate, then Trump should proceed with the tariffs.
While infighting within the GOP may be normal, it should concern officials facing an election next year.
With Congress barely controlled by the Republicans, a recession and ongoing market declines may cause the House and the Senate to be flipped in the midterms. Event betting platform Polymarket currently has the possibility of a recession at 65%. The anticipation of an economic decline has risen dramatically in the past weeks.
Losses in Congress will destroy the White House’s attempts to enact policy goals in the administration’s last two years. While direct foreign investments remain robust, shifting capital and resources takes years. More investment is great, but it will not come soon enough to save the GOP’s ambitions if deals are not cut with trading partners.
Conventional wisdom is that Trump has weeks, perhaps months, to right the ship and restore confidence in markets. This would mean pursuing the “reciprocal” concept of fair trade deals rather than tariffs simply as punishment and payback as a long-term policy. If the Trump administration announces some deals with large trade partners soon, markets will react positively. If he seeks to burn bridges with both friends and enemies, things will not turn out well for the administration and the GOP in general.