Donald Trump has repeatedly ignored warnings from businesses and economists against imposing tariffs on imports into the United States. His tsunami of levies has bludgeoned the stock market and wiped billions of dollars off Americans’ retirement accounts.
Before the 47th US president, there was another blond(e) with a distaste for economic orthodoxy setting fire to financial markets. The Parable of Liz Truss should be required reading for Trump.
A little over two years ago, the then-British prime minister attempted to push through massive unfunded tax cuts, decimating UK government bonds before she was forced into a humiliating climbdown. The episode ultimately cost Truss her job, earning her the title of Britain’s shortest-serving premier and the rare distinction of having spent fewer days in office than it took a lettuce to decompose.
Trump’s job looks secure as US and UK government systems are different. The president and his policymakers have also surprised investors with the level of market pain they are prepared to withstand to implement their radical economic agenda. But their tolerance is not infinite, analysts tell CNN.
Ross Mayfield, an investment strategist at Baird, a financial services firm, believes “there’s way too much private wealth tied up in the equity market for there not to be a point” beyond which Trump feels forced to change course on tariffs.
“Financial markets are ultimately king,” he said.
Trump says he believes tariffs are a silver bullet for America’s economy: a means to boost domestic manufacturing, raise money to eliminate the US budget deficit and cut income taxes, and extract concessions from other countries on trade and other issues.
But businesses and economists argue that, instead, import duties raise prices for American producers that use imported inputs and for consumers, while retaliatory tariffs imposed by other countries lower demand for American products abroad.
Trump has admitted his tariff plan will cause “a little disturbance” and has declined to rule out the possibility of a recession. Last week, Goldman Sachs said there was now a 20% chance of such a downturn in the US over the next 12 months, up from 15% previously. Economists at JPMorgan have also upped the probability of a US recession this year to 40% from 30%, saying in a note last week that “less business-friendly” government policies were partly to blame.
Investors, too, have turned gloomier.
As of market close on March 14, the S&P 500 index has fallen 8.2% since its record high on February 19. The tech-heavy Nasdaq Composite has cratered 12% since hitting its all-time peak in December.