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We should trust in Donald Trump’s instincts, says Mike Johnson, Speaker of the House of Representatives. Alternatively, Johnson and his caucus should run screaming in the opposite direction. It is too late for Republicans to revert to being a normal party — belief in Trump is their organising principle. But they could play the loyalist by coaxing Trump off the ledge. In addition to their jobs, the future of the global economy, and every American’s retirement fund, depends on it.
Their task is complicated by the fact that Trump still thinks he is on to a winner. Try to stand in his shoes. From his 2011 Obama foreign birth conspiracy to his 2024 conviction as a felon, and so many points in between, Trump has almost annually been left for dead. But his phoenix keeps rising. Trump is a fantasist whose deepest-lodged fantasy — that he is an unstoppable winner — keeps coming true. Why would a little market turmoil stop him?
The starting point is that Trump is a hammer and the rest of the world, as well as half of America, is a nail. Sometimes the hammer can focus on select nails, or soften its blow, but he is always a hammer. That some of Trump’s closest backers, such as the New York hedge fund manager Bill Ackman, are surprised by his global tariff war, is a mystery. Trump vowed in almost every single campaign speech to unleash the trade war we are now in.
He has been blaming foreigners for ripping off America since the mid-1980s. Note, his obsession was with Japan, not the Soviet Union. Trump has always been angriest with allies and friends. His deepest contempt is now reserved for Europe and Canada. Psychologists extrapolate from the estate settlement Trump tried to impose on his own siblings. If your instinct is to rip people off, including those closest to you, assume that is everyone’s method.
The mystery is why so many — from Ackman’s fellow billionaires to Florida-based Venezuelans — have bent over backwards to miss who Trump is. A trillion comments have been wasted accusing the wrong people of Trump derangement syndrome. The real TDS afflicts those who keep seeing a rational actor, or an economic chess game, where none exists. The whole market arguably suffers from this syndrome. Shortly after plummeting on Monday morning, a fake news release surfaced that said Trump would announce a pause on his tariffs this week. The markets more than erased their opening losses. All those gains, in turn, were wiped out when the White House issued a denial.
If an online meme can turn a bear market into a bull recovery in the space of a minute, and back again, Trump has the world in his palm. The merest rumour that he might be sane can trigger a buying frenzy. Roman emperors would envy the finger-crooking sway of one man. Yet at some point, possibly imminent, Trump could be forced to pause at least some of his “liberation day” duties. That will trigger a big relief rally. But his pause will be no surer than stray driftwood. The same might apply to his threats of a new 50 per cent tariff escalation on China.
Markets will cheer any hints of bilateral deals Trump plans to strike with more influential demandeurs — Japan, China and India should be closely watched. Investors should also pay heed to the fact that such deals will be struck between foreign governments and Trump personally, not his administration. The departments of Treasury, commerce and the US trade representatives are often out of the loop. Given the lack of boundary between Trump’s public role and private investments, the scope for non-trade-related bartering is great.
The idea that Trump’s impact will be limited to the goods-traded economy is also wishful thinking. Foreigners own a critical share of US Treasury debt. Continued high demand for an asset in whose issuer the world is losing trust is the difference between a Trump recession and a Trump depression. On this, Europe’s governments seem to have better instincts than the equity and fixed-income markets. Rather than escalate the trade war, the EU is mulling only a modest toolkit of retaliations. This is not because Brussels thinks Trump is likely to embrace comity. It is because it fears a tit-for-tat trade spiral will break the global financial system.
Either way, this teachable moment is needlessly belated. Trump’s sane-washers have forfeited their credibility. There is no school of foreign policy realism, or trade mercantilism, that could explain Trump’s actions. If you want to forecast the world, study his psychology. While Trump is in charge, stay short on America.
edward.luce@ft.com
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