OK, Boomerang
“Let’s take this outside!” … “OK, good, now let’s go back inside.” The market soaring with relief as the great tariff war between the US and China has been postponed. Yogi Berra might describe the economic news as being like déjà vu all over again, because it sure seems that we’re back where we started. Of course, given the market disruptions and the supply chain concerns, there aren’t a lot of people complaining about the destination—but the instability caused by the journey could have a lasting effect. (If nothing else, whenever I check my portfolio, my face reverts to an expression that looks like it was painted by Edvard Munch.) And what exactly was achieved through the hardball, boomerang effect inducing tactics that left us pretty much right where we started? “While the Trump administration vowed to punish any country that retaliated against its April 2 tariffs, China, which did exactly that, finds itself with slightly lower levies tariffs than it faced April 2. Eurasia Group founder Ian Bremmer said in a note to clients that the ratcheting down of U.S. tariffs signaled ‘Trump’s biggest climbdown to date.'” Barron’s: Trump Blinked ‘Big Time’ on China Trade, Taking Worst Case Off Table.
+ WSJ (Gift Article): What the U.S.-China Trade Agreement Means for Markets: “But an even better reason for such a big bounce—3.1% on S&P futures and a 3.8% drop in the gold price as I write—is that it looks like Treasury Secretary Scott Bessent is now in control of trade policy. Put simply, the grown-ups are in the room.”
+ “When President Donald Trump launched his trade war on the world, he issued a stern warning: “Do not retaliate and you will be rewarded.” China ignored the warning. It was rewarded anyway. This morning, Trump largely suspended his trade war in return for nothing but promises of ongoing discussions. There is a lesson here for everybody Trump threatens, whether countries or businesses or universities.” The Atlantic (Gift Article): China Called Trump’s Bluff.
+ So what exactly is going on? David Frum has a theory. “If you’ve ever watched a game of three-card monte, you’ve noticed that the dealer talks nonstop. The chatter serves two functions. First, it distracts the victims. Second, and maybe more important, the dealer is deceiving his victims about what’s befalling them … But if the goal is to redistribute the cost of government from the richest to the poorest, while enormously augmenting the president’s personal power to the detriment of Congress, then the Trump plans make a lot more sense.” The Trump Trade-War Scam.
