Trump disregards the markets in his peril. Just ask former British Prime Minister Liz Truss
Businesses and economists have frequently warned Donald Trump not to impose taxes on goods in the United States. His wave of taxes has hammered the stock market and depleted billions of dollars from Americans’ retirement funds.
Before the 47th US president, another blond(e) who disliked economic orthodoxy set fire to financial markets. The Parable of Liz Truss should be essential reading for Trump. A little more than two years ago, the then-British prime minister sought to impose enormous unfunded tax cuts that decimated UK government bonds before being driven into a humiliating retreat. Truss lost her job due to the event, giving her the title of Britain’s shortest-serving premier and the uncommon distinction of spending fewer days in office than lettuce decomposes.
The president and his policymakers have also startled investors with the extent of market suffering they are willing to tolerate to accomplish their radical economic plan. However, analysts warn CNN that their tolerance is limited. Ross Mayfield, an investment strategist at Baird, a financial services business, says, “There’s way too much private wealth tied up in the equity market for there not to be a point” at which Trump feels compelled to reverse course on tariffs.
“Financial markets are ultimately king,” he remarked. Trump believes tariffs are a silver bullet for the American economy: a way to promote home manufacturing, raise funds to reduce the US budget deficit and income taxes and wring trade and other concessions from foreign nations.
Trump has recognized that his tariff plan would cause “a little disruption” and has refused to rule out the potential of a recession. Last week, Goldman Sachs estimated a 20% likelihood of such a collapse in the United States over the next year, up from 15% earlier. JPMorgan economists have also raised the chance of a US recession this year to 40% from 30%, citing “less business-friendly” government policies as a contributing factor in a note issued last week. As of March 14, the S&P 500 index has lost 8.2% from its record high on February 19. Since reaching its all-time high in December, the Nasdaq Composite, which is dominated by technology, has fallen 12%.
‘The final arbitrator’:
Ignoring the market reaction to policy announcements is a dangerous move, significantly if that reaction impacts the whole economy. Jack Ablin, a founding partner at Cresset Capital, a Chicago-based wealth management business, believes the stock market will be “the ultimate arbiter” of Trump’s economic policy since it drives crucial consumer spending.
According to Ablin, Americans who are watching the decline in the value of their stock portfolios and retirement accounts will feel less fortunate and may cut back on non-essential expenditures such as trips and restaurants. And Trump could only overlook the harmful impact on the entire economy for so long. Mayfield of Baird agrees, stressing that Trump has several weapons to reassure investors.
