It’s a good thing “you can’t really watch the stock market,” as Donald Trump told Maria Bartiromo early last month, when quizzed about the dour mood on Wall Street.
And it’s likewise a good thing Scott Bessent’s “trying to be Secretary of Treasury, not a market commentator,” as he told Bloomberg this week, when similarly queried.
Because man, oh man, it you could “watch the stock market,” and if you were “trying” to comment on it, you’d see a train wreck and you might feel compelled to say as much.
US equities suffered grievous losses Thursday as investors and businesses recoiled at the astonishingly brazen math behind Trump’s “reciprocal tariffs.” The equation the USTR used was mercilessly lampooned as dangerous farce, marking the second time in as many weeks the administration played fast and loose with matters of the utmost global concern.
First it was fist bump and fire emojis in a commercial group chat where the Secretary of Defense posted war plans in full view of a civilian he didn’t know was there. Now it’s a tariff “formula” written so as to goal-seek the elimination of trade imbalances, an exercise one econometrician described to the FT as “insane,” before emphasizing what everyone possessed even of a passing familiarity with the subject has said over and over again since 2016 — namely that “there’s no economic reason to have balanced trade with all countries.”
This is the beauty of Trump. Whenever he does something, you can go ahead and assume it’s farce, even if you can’t say why just yet. So, for example, on Wednesday afternoon while he was still talking in the Rose Garden, I said the tariff calculations “probably don’t make any sense.” Within half an hour, it was obvious that in fact, they didn’t. That the administration had resorted to what initially looked like laziness, lacking the mathematical wherewithal the task required if someone wanted to do it correctly.
Fast forward to noon (give or take) on Thursday and, as Matt Levine pointed out in a rare (for Matt) foray into quasi-political opinion, there actually was an underlying logic of sorts, but in order to call it logical, you have to ignore the fact that the objective — in this case zeroing out trade imbalances — is itself nonsensical, and also that, as Matt noted, the whole charade was a transparently tautological exercise in goal-seeking.
“In what economists around the world are describing as ‘crazy’ and ’embarrassing,’ instead of basing reciprocal tariff rates on some combination of bilateral tariff differentials, VAT taxes and non-tariff barriers, reciprocal tariff rates have apparently been set by using the formula MAX(10%, (imports-exports)/(imports * k)), where k=1 since they conveniently assume elasticity of import prices to tariffs of 0.25 and a price elasticity of import demand of 4, and then divided by 2 ‘just because,'” JPMorgan’s Michael Cembalest wrote, of the same exercise, adding that the new levies could translate into a US tariff rate of around 24%, nearly 10x where it stood at the beginning of the year. “I have difficulty believing a tariff rate this high could be sustained for long,” Cembalest added.
If the Trump administration thought markets were inclined to let this slide, they were wrong. The only thing sliding Thursday were US equities.
As the figure shows, the post-“Liberation Day” trade found US shares suffering their largest single-session decline since June of 2020.
There’s no point skirting the issue: This was a fiasco, and not just because markets hate tariffs and “globalists” love free trade. The administration went from looking unduly capricious to lazily incompetent to inanely duplicitous, as economists and market observers dissected and scrutinized what, if we’re being honest, is a sham foisted upon the world by Trump’s USTR.
Do note: The dollar had its worst day of the year Thursday. That’s problematic. “The administration’s argument goes that if the dollar appreciates… foreigners [are] paying through a loss of purchasing power [but in] an environment where the dollar’s weakening, this clearly doesn’t work,” ING’s James Knightley remarked. “It means sharply higher costs for US importers unless they can convince foreign producers to cut their prices meaningfully.”
In Stephen Miran’s “world of perfect currency offset,” that shouldn’t be happening. “American consumers’ purchasing power isn’t affected, since the tariff and the currency move cancel each other out,” he wrote, in a memo which still serves as a go-to when the administration needs to “sanewash” its policies. “Since the exporters’ citizens bec[o]me poorer as a result of the currency move, the exporting nation ‘pays for’ or bears the burden of the tax, while the US Treasury collects the revenue,” he said, in the same paper.
Suffice to say this isn’t a “world of perfect” anything, and there are any number of ways Miran’s grand theory could go awry. In fairness, he’s not oblivious to the many nuances. Here’s hoping he’s prepared to discuss the finer points and otherwise testify frequently in the court of public opinion, because if Thursday was any indication as to how this project’s going to be received by markets, he’s going to be on the defensive early and often. He told Fox Thursday that the tariffs “are not at all inflationary.”
“This is an Impoverishment Day, in our view, not a Liberation Day,” Jefferies’ Christopher Wood wrote, piling on and adding that it was “very significant” to see the dollar back-footed. That’s “the opposite of what Miran would have expected,” he said.
Of course, part of the dollar move was down to plunging front-end US yields and a sharp dovish repricing across the US rates complex, where “hard landing” bets were already proliferating in light of lackluster data.
As the figure shows, pricing for 2025 Fed cuts moved ~20bps on Thursday alone. Traders now expect 95bps of easing, which is to say four cuts are almost fully priced.
The 2s10s bull steepened by 6bps Thursday, and the 2s30s by 15bps. If recent bull flattener cameos were a stagflation warning, Thursday’s bull steepener was a recession siren. Five-year reals plunged 19bps.
“The bull steepening brought 2s10s as high as 34.7bps in a meaningful reversal of the recent flattening trend,” BMO’s Ian Lyngen wrote. “Investors are now looking toward the Fed for a potential response as the equity market downtrade persists.”
Again, this was an unmitigated disaster, and anyone who says different is lying to you.
Commenting to reporters on Thursday, Trump said his new plan’s “going very well.” “The markets are going to boom,” he declared. “The stock is going to boom. The country is going to boom. You’ll see.”
Boom like implode …
I can’t understand why you think they didn’t do the homework!! Those penguins need to pay.
https://www.nytimes.com/2025/04/03/business/economy/trump-tariffs-heard-mcdonald-islands.html
Sorry
THOSE PINGWINS NEED TO PAY!!!!
Thats better !
It’s the ridiculousness of it all that is the big problem. The breakdown in credibility is insane and who would want to negotiate with the people that thought this all up? Who reasonably expects to achieve a lasting trade agreement with those same people? And what will be the goal, achieve zero trade surplus / deficit with each individual country? Not even like 20bn surplus with country A and 20bn deficit with country B?
No, H., you have been very right from the start. In my own simple words, the Republicans needed to find a new source of tax revenue to fund further tax breaks for the rich. Couldn’t tax poor people’s income if they didn’t have it, so decided to implement a VAT system, I mean tariffs because a president can’t just implement a VAT system by executive order. The best thing for the rest of the world is probably to just ignore it all, don’t implement new tariffs and just try to do business with other countries. No point negotiating and the US voters will do the rest at the next election.
America’s lost its shit and maybe finally, some people are waking up to that fact.
The incompetent cruelty is intentional. The MAGA Nazi movement is a nihilistic anti-human hate cult with the only goal being to destroy and make as many people as possible suffer. The suffering is a psychological warfare tactic designed to force capitulation to the tyrant.
Pulling from the piece, we can shorten the sentence: “it’s a tariff “formula” written so as to goal-seek the elimination of trade”. The goal is walled kingdoms with misery so vast that the only respite is from the favor of the king.
Even those who are not suffering from the MAGA Psychosis are still generally handicapped by their own cognitive dissonance, stuck in paradigms that the world can’t possibly be this bad, we aren’t seeing the second great rise of Nazism. It is and we are.
Agreed hopium
“Psychotic Anarchist”:
The phrase “psychotic anarchist” could be used to describe someone who holds anarchist beliefs and also experiences psychosis, or to suggest that someone’s anarchist views are rooted in a mental illness.
His whole band of bozo’s are Anarchist, pretending to be Patriots. They prove it everyday.
Ever notice that Anarchist and Antichrist are on a couple letters different?
It is funny to recall that a few weeks ago, reports were USTR Greer was seeking to take leadership of tariffs away from Lutnick, in order to better manage the process. Now Greer has fallen on his face and Lutnick is all over the tariff news reports again.
There’s four who can take the fall: Lutnick, Greer, Navarro, Miran. I’m guessing the latter two are safer than the former. Bessent seems to have distanced himself from the tariff fiasco, and can probably convince Trump that falling interest rates are his accomplishment.
I’m quite sure Trump is furious about the stock market plunge, it is all over Fox News. He’s not going to be happy at the coming economic data either. Or the next market downdraft to come when 1Q guides come in stinky.
Alongside Vance, Bessent is the other Thiel agent so he is probably safe. Navarro went to jail for the president. The others?
The most amazing part of this fiasco is his continued insistence that he doesn’t care about stock prices at all.
Bankrupting multiple casinos before gambling was widely legalized and game-ified is all you need to know about Trump’s poker (joker?) face and skills. Maybe that’s a good way to resolve this trade crisis, or any crisis involving Trump — make him sit down with any or all of the conflicting parties and have it out in a poker match. Maybe it’s about time we switched from being tired of all the “winning,” to actually benefiting from some losing.
Trump may not care about the market (he doesn’t really own stock, mostly has real estate and bitcoin). However, the millions of voters watching their IRAs, 401ks and other retirement scams (plans) crash are not as friendly to the Junta as they once were. They have lost billions of their hard-earned retirement savings this week with more to come.
As soon as we can onshore our lost garment industry all will be OK, give it a few months, things will surely add up (sarcasm). The hotdog line at Costco was unusually long, today.
H-Man, more akin to Nero fiddling while Rome burned. This downdraft has legs so don’t be surprised when Nero claims victory by reducing tariffs as the market goes into a death spiral. And the when the economy is in ashes, Nero will blame it on the usual suspects.
Something will break soon and America’s Liz Truss moment is right around the corner.
It is almost as if none of Trump’s economic team are even remotely familiar with the works of David Ricardo.
Now imagine if some of our (former) trading partners were to work together to uniformly–perhaps even strategically–boycott as many US goods as possible, for as long as possible. We could actually wind-up losing jobs, no?
Bingo
That was the suggestion made in the Economist yesterday.
Or anybody else, for that matter.
Not that I think Trump is a great strategist, but I wonder what else the Trump administration is doing while all eyes are on the tariff announcement and fallout? I imagine people like Stephen Miller plan for these moments.
Gee, seems like tRump needs a war to distract us to the next insane folly…then the next and so on…hello Iran!
That is being talked up a bit. The president needs a foreign policy “win” since his peace keeping efforts with Russia/Ukraine and Gaza do not seem to be yielding “wins”.
Bonds are rallying. Yes stock market is correcting with chances of Recession. Why is Recession a bad thing?
Because GOP voters will lose jobs and money, that’s why.
A possible explanation is that a foreign intelligence organization successfully penetrated the White House.
It did, early in 2017, the former head of the KGB stopped by for a chat and Trump shared top-secret documents with him and bragged about it.