Source : THE AGE NEWS
Investors compiling a report card on the first 100 days of Donald Trump’s second term as US president would be using a lot of red ink.
Since his inauguration, the sharemarket has slumped 8.6 per cent, with the “Magnificent Seven” big tech stocks that have powered the US market over the past two years down nearly 17 per cent and energy stocks – an industry that was supposed to boom under Trump – tumbling more than 10 per cent.
The US dollar has fallen 9.5 per cent against a basket of America’s major trading partners’ currencies, raising the spectre of capital flight. Bond yields, amid wild volatility, have weakened by more than 40 basis points as fears of a recession in the world’s largest economy have grown.
Donald Trump is in command, to the detriment of global financial markets.Credit: AP
Those movements in markets are outcomes, not causes. They reflect the massive disruption, some would say destruction, that Trump has wrought in just over three months in office.
He has upended, if not destroyed, the global trade and finance system that had been developed over the past three quarters of a century, with America at its centre. At the same time, he has neutered, if not yet demolished, the multilateral institutions that have supported it and helped disseminate American influence and power throughout the globe.
Trump has alienated allies and foes alike with his assault on global trade via his beloved tariffs in pursuit of an economically irrelevant goal – balanced trade – setting America and the world up for a new global supply chain shock.
The nearest comparison is the savage sell-off in markets at the start of Richard Nixon’s second term in the early 1970s.
He has created what his own Treasury Secretary Scott Bessent has described as the equivalent of a trade embargo between the world’s two most powerful economies, with his 145 tariff on imports from China, which retaliated with 125 per cent tariffs of its own.
His attacks on Jerome Powell, the Federal Reserve Board chairman, have politicised the US central bank and undermined the credibility of Powell’s successor – and the bank – when the chair’s term ends next year.
The combination of his trade policies and his threats against Powell (which he has backed away from) have not just caused a sell-off of the US dollar and US financial assets, but placed a significant question mark over the greenback’s continued dominance of global finance and trade.
Trump’s “America First” policies, by up-ending relationships with allies built over 80 years, have undermined trust in the US, made its allies wary of the dollar’s dominant role in the global economy and fearful that it could be weaponised against them – as it has been against Iran, Russia and China.
Meanwhile, Trump set Elon Musk and his chainsaw loose on the US government bureaucracy, letting him slash staff indiscriminately and without, it seems, any thought as to the longer-term consequences and, with his assaults on US aid agencies, doing untold damage to America’s “soft power” along with what is likely to be a substantial human toll in some of the world’s poorest countries.
Trump took a US economy that was performing far more strongly than any other developed economy, with solid growth, ultra-low unemployment and an inflation rate declining steadily from its post-pandemic spikes, and put it at significant risk of a stagflationary recession.
He has done all this without any Congressional authority – hardly a White House-sponsored bill has been passed by Congress – but via a seemingly endless series of executive orders, some of them arguably unconstitutional. He has broadly followed a script, Project 2025, written by the conservative Heritage Foundation.
There is, of course, a lot more that Trump has done. Immigration, the defence forces, universities, big law firms, the judiciary, education, health and even arts and science institutions have all been targeted for job cuts, “anti-wokeism” and Trump’s retribution against his perceived enemies.
And it has only taken 100 days!
The centrepiece of his agenda and the one that has most hit markets and the US economy in that time has been his trade policy: the 10 per cent universal tariff on all imports to the US, the “reciprocal” tariffs on about 90 countries that have been targeted because of the size of their trade surpluses with America, and the 145 per cent tariff on China.
Those tariffs, announced on “Liberation Day” (April 2), were announced with much fanfare. However, after a savage backlash from financial markets and warnings of chaos from key industry leaders, the reciprocal tariffs (based on a crude and nonsensical formula) were paused for 90 days. Exemptions for some goods have been announced and Trump has said he might unilaterally reduce the tariffs on China’s exports.
The tariffs almost caused the US bond market – the most important market in the world – to melt down, which caused Trump to back down and adopt a more conciliatory tone in references to China.
Even though there was a surge in imports before Liberation Day to get ahead of the tariffs, the earlier tariffs on aluminium and steel and the initial responses of exporters are already showing up in increased prices. Soon, there will be higher prices and empty shelves, which big US retailers warned Trump would occur.
Global supply chains that connect the US to the rest of the world are already being disrupted, with exporters – particularly Chinese exporters – delaying or cancelling shipments to the US while they wait to see what happens next. Bookings of containers, ships and aircraft are tumbling.
Manufacturing only accounts for about 10 per cent of the US economy, so a lot of products are not going to be available in the US when those ships and planes don’t arrive or cost far more if they eventually arrive.
Even for products made in America, the cost of imported raw materials and intermediate products they use in their processes will have risen and will be either absorbed in reduced corporate profit margins or, more likely, passed on to consumers.
Trump says he has done 200 trade deals in less than three weeks since he paused the reciprocal tariffs only a week after announcing them.
Trade deals usually take years of line-by-line negotiations, so the assumption is that he’s referring to broad, heads-of-agreement-type deals, with the fine print to be ironed out over the next several years.
Even agreements in principle might appear a major victory for Trump’s use of tariffs as leverage, except many countries facing reciprocal tariffs have been asking for free trade deals with the US for years.
Indeed, Japan and Vietnam, key targets for Trump’s negotiators, were once (momentarily) free trade partners with the US (along with Canada, Mexico, Australia, New Zealand, the UK and others) within the Obama-led Trans-Pacific Partnership, a trade deal Trump withdrew the US from in the early days of his first term.
While Trump’s trade war on everyone continues, US business and consumer confidence is diving, inflationary expectations are rising and the perceived risk of a self-inflicted recession is now regarded as akin to the toss of a coin.
Trump’s poll numbers are crashing to 80-year lows for this period of a presidency. That wasn’t supposed to be the position after the first 100 days – usually something of a honeymoon period for incoming presidents.
Trump was supposed to deliver America’s tech, crypto, energy and Wall Street billionaires – who, between them, poured billions into his election campaign – lower taxes, less regulation and a simple, universal baseline 10 per cent tariff regime.
Instead, they’ve had nothing but chaos, disruption, volatility-inducing policy flip-flops and the worst first 100 days for markets in half a century. The nearest comparison – some would say an appropriate one – is the savage sell-off in markets at the start of Richard Nixon’s second term in the early 1970s.
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