"Bluffs and Bluffery" - Trump's Trade War Dance on Wall Street
Trump instills fear among Wall Street figures
By: Scooter Jones
Nowadays, Wall Street takes Donald Trump's erratic trade war attempts with a grain of salt and a healthy dose of skepticism. Investors have learned to anticipate that the brash President will once more back down after pumping up the pressure. But that's no small matter.
Recently, Trump declared a preliminary framework agreement in the trade dispute with China, following a marathon negotiation session in London. While the world heaved a sigh of relief, it seemed the tariffs at the staggering rate of over 100% could be coming back between the world's largest and second-largest economies.
Sound familiar? This is just another instance in the long-running pattern Trump has established since the start of his trade war: boasting, ranting, threats, and, ultimately, a deal - even if it's lacking in substance. "Escalation to de-escalation" is what military strategists and political experts call it. As for Wall Street, they've dubbed it "Trump always bluffs" (TAB).
The TAB maneuver has become legendary, and the internet is awash with TAB memes, some of them humorous, like this ditty:
"First he bark, then he backs down,The market climbs, and we rebound,But watch as he jumps at the trigger,A rollercoaster ride, just another chicken-breeder."
Investors on Wall Street have long incorporated the President's dramatic tactics into their strategies. If you're brave enough to stomach Trump's tariff roller coaster, there's a good chance you could rake in hefty profits. As it turns out, a simple bet since February — every time Trump rhetorically ups the ante, bet on a stock market crash, then buy them back five days later — has returned approximately 12%.
In any case, the market's only tactic for dealing with Trump's constantly shifting trade policies remains "Buy the Dip", the practice of buying a stock after a drop. There's a reasonable chance that will continue for some time to come, according to several analysts who believe Trump has already stretched his luck with China to the breaking point.
Yet, the trade war has become increasingly detrimental to US exporters, hurting domestic businesses as well as consumers. Even Trump's most fervent supporters are now starting to notice the pinch in their wallets. The World Bank has significantly lowered its economic growth forecast for over half of all countries, with the slowest growth since the 2008 financial crisis looming.
China, for its part, has discovered a potent weapon against Trump: rare earths. US automakers have been pleading with the White House to negotiate with Beijing due to critical minerals needed for electronics and other high-tech products. Indeed, the London negotiations were instigated by this issue, as production lines in some US factories have already ground to a halt due to China's export restrictions. China holds a near monopoly on the production of these indispensable materials.
Yet, the agreement between the two countries remains fragile. As more and more traders stakes on the trade deal, the payoff decreases, and the risk of a market crash increases. The danger of being wrong or being caught off guard by Trump is very real.
Furthermore, the obviousness of Trump's bluffs can work against him. When it comes to trade, Trump has ruthlessly followed through on some of his threats, including doubling steel tariffs. However, his constant blustering may drive China to harden its stance and refrain from de-escalating when it suits Trump.
The New York Times quoted the former chief lobbyist of the US Chamber of Commerce questioning the usefulness of the deal, asking,"What exactly are we getting that we didn't have before?" The CEO of a libertarian think tank stated, "It seems like we're just going around in circles."
Uncertainty is rampant, and the long-term consequences for the global economy, supply chains, small and medium businesses, and overall consumer confidence could be severe. The greatest risk lies with Trump himself, who might lash out impulsively due to an inflamed ego. Wall Street may mock him now, but that could change.
- Donald Trump
- Trade Policies
- Stock Market
- Wall Street
- Rare Earths
Supplementary Insights:
- Investors and businesses can employ strategies to navigate unpredictable trade policies: diversification, focusing on versatile industries, utilizing tariff exemptions, adapting quickly to changing policies, investing in expertise to comply with regulations, and risk management through financial instruments and insurance.
- Donald Trump's Administration's erratic trade policies have led to concerns about growth, supply chain disruptions, the impact on small-to-medium enterprises, and the overall economic impact on global consumer confidence.
- United States auto manufacturers are suffering from rare earth shortages as China restricts its exports, a situation worsened by the trade dispute. This rare earth monopoly has given China significant leverage over the US and Trump's Administration.
- The unpredictable nature of Donald Trump's trade policies has led Wall Street to adopt strategies such as diversification, rapid adaptation, and calculated risk management.
- The prolonged trade war between the United States and China has resulted in the US suffering from critical rare earths shortages, causing risks for auto manufacturers and highlighting China's leverage.
- Questions have been raised about the substance of the deals negotiated by Donald Trump in the trade war, with some critics asking, "What exactly are we getting that we didn't have before?"
- The constant bluffing by Donald Trump during the trade war has created a volatile environment on the stock market, where a single impulsive action could have severe consequences for the global economy.
