Monday proved to be an incredibly surreal day on Wall Street, and the moment when reality finally settled in: President Donald Trump’s trade war is real and shows no signs of abating.
After stocks made a precipitous tumble in the early hours of trading, the market began to rebound amid a news report that the Trump administration was considering a 90-day pause on its tariffs. But it turned out not to be the case, and the White House immediately swatted down the speculation, calling it “fake news.”
Before trading, Jamie Dimon, the CEO of JPMorgan, sent his annual letter to shareholders saying, “We are likely to see inflationary outcomes, not only on imported goods but on domestic prices, as input costs rise and demand increases on domestic products.”
This comes after Dimon had previously told CNBC at the World Economic Forum in Davos, “If it's a little inflationary but good for national security, so be it. Get over it.”
But Dimon’s words now show that he’s not getting over it, nor will markets.
If anything, Trump showed a desire to double down on tariffs, saying he would levy an additional 50 percent tariff on Chinese imports after China announced 34 percent reciprocal tariffs against the United States.
Wall Street should have known that Trump was dead serious about the tariffs. Arguably, it was the only concrete policy, alongside mass deportations of immigrants, that he discussed in vivid detail. He pledged that the money generated from his tariffs would be far more than needed to pay for childcare at the Economic Club of New York. He talked about his tariffs to the Economic Club of Chicago. It may have gotten lost in between his “weave” speeches, where he jumped from talking about windmills and Hannibal Lecter, but it nonetheless existed.
Wall Street just opted not to pay attention.
It was hoped that Trump’s return to the White House would be akin to his first stint. That time, he had Goldman Sachs alumni like Gary Cohn as the chairman of his National Economic Council and Steven Mnuchin as his Treasury secretary. He picked Rex Tillerson, a former ExxonMobil executive, as his Secretary of State and Wilbur Ross, a private equity executive, as Commerce Secretary.
That business friendliness led to him coupling his more populist ambitions, like placing tariffs on China, with more conventionally conservative actions like the 2017 Tax Cuts and Jobs Act.
But Trump has mostly filled his second administration with like-minded populists, including Peter Navarro, his senior counselor on trade and manufacturing, who is in many ways the architect of Trump’s trade policy and is a hawk on China.
Kevin Hassett, who served as the head of his Council of Economic Advisers in the first Trump presidency, now has Cohn’s job. Hassett’s interview with Fox & Friends on Monday morning, where host Brian Kilmeade asked if Trump would be open to a 90-day pause on tariffs, which Hassett dodged, triggered the false alarm.
Instead of Ross, Trump has Howard Lutnick at Commerce. Lutnick spent Sunday defending the administration’s decision to place tariffs on the Heard and McDonald Islands, which are inhabited only by penguins, by saying other countries would use countries exempt from tariffs to get to the United States.
Wall Street is hoping that even amidst all the chaos, they can still get the tax cuts that made them get behind Trump. But there are even snags there.
Over the weekend, the Senate passed its version of the House budget resolution. If the House agrees, this would allow them to begin the process of writing Trump’s proposed “One big, beautiful bill” that extends the Trump tax cuts and increases spending for the US-Mexico border, the Pentagon, and energy exploration.
But almost immediately, conservatives in the House, like Chip Roy of Texas, rejected it for making insufficient spending cuts.
In addition, for all of Trump’s talk about “drill, baby drill,” oil prices have continued to tumble. If the price of oil falls too low, energy companies will have no incentive to increase drilling.
If Republicans fail to pass the tax cuts that have been one of the last pillars that keep businesses hewed to the GOP, it might wind up causing a dam to break. But Wall Street cannot feign its surprise. Trump’s words were always in plain sight.
