Trump’s sudden and impressive retreat with the 90-day tariff freeze gave the markets a breather and time to more correctly assess the effects of his policy.
However, the enormous uncertainty that prevails in all markets has not been overcome.
Some believe that the markets are balancing, others are still very cautious. What is being judged is the credibility of the United States, which depends on the stability of Trump’s policy. And from his past antics to date, Trump is considered unpredictable and causes great uncertainty in the markets.
Wall Street is the least of the problems, the bond market is the one that will determine developments. And US stock prices may have recovered with the tariff freeze, dragging stocks on all stock exchanges up with them, but the US bond market is numb. Fund managers invest at least 40% of their capital in bonds and have not yet clarified their stance on the US. Their stance depends on whether they consider the policy to be credible or not. It remains to be seen how US bond prices will move in the coming days and weeks.
The global bond market determines the cost of borrowing for all countries. If US bonds, which are considered safe havens, lose their luster and the cost of borrowing for the US increases, this causes an increase in the cost of borrowing in all countries. The crisis in the bond markets is what causes economic crises much greater than stock market crises.
Combined, the two – as happened last week – are a sign of impending disaster. According to authoritative international analysts, the fall in US bonds is the cause of Trump’s disorderly retreat in the trade war. Along with, of course, the pressure he suffered from the reactions of Republican senators and his multi-billionaire business friends. With the simultaneous fall in stocks and bonds, not only are corporate profits and shareholder money lost, but Americans’ pensions and the ability of the United States to borrow to refinance its enormous debt are also lost. All of this was apparently explained to Trump, who made a very impressive “backflip” and of course presented it as a success of his policy. He said that he decided to freeze the tariffs because 70 leaders called him to negotiate, therefore his strategy achieved its goal. No one knows who called him to negotiate and who to protest vehemently, but in any case, Trump needs to feel like a winner, not a loser, and this is understood by all leaders trying to find a way out.
It is no coincidence that Mitsotakis’ statement that there is a win-win solution meets Trump’s psychological need to feel like a winner, and that is why he immediately reacted positively, saying that he knows Mitsotakis and that he is a good person.
The positive thing about Trump’s blunder is that, as it seems, there is finally a reaction within the US, on the one hand from senators (Democrats and Republicans), but also from businessmen and bankers. This reaction can limit Trump’s extremely dangerous imperial illusion and provide the support that the global community needs to continue operating within some framework of relative stability.
Uncertainty is not so easily eliminated, but at least it is limited, until there is a new reversal by the American president.
China
As for the development of the trade war, its effects will certainly be smaller, but they do exist. On the one hand, because the 10% tariffs remain for all imports into the US and will cause inflation in America and on the other hand, because the game with China has just begun. Trump limited the trade war only against China, even increasing tariffs on Chinese products to 104%. China responds with lower tariffs and increases the prices of Chinese products sold online in the US by 70%. At the same time, it has already initiated contacts with all other countries to maintain and increase their trade transactions and its most important weapon is the devaluation of its currency in order to become more competitive in the markets. At the same time, the dollar is also depreciating, as uncertainty reduces the willingness of investors everywhere to increase the share of the United States in their investments.
As the world’s two largest economies clash and their leaders do not yet seem willing to find a consensual solution, it is not clear who will be the winner and who will be the loser. It is probably very unlikely that there will be any winners, only losers for both, but also for global trade as a whole.
