President Donald Trump's tariffs were a chaotic week. First of all, they were on, then they were great, and they were probably off, and definitely off (but for now).
Stocks fell quickly after the Trump administration enacted a 25% tariff on most Mexican and Canadian goods on Tuesday. As of Thursday, the S&P 500 had fallen almost 4% since the beginning of the week.
For now, these duties appear to be pending. After creating temporary sculptures of imported goods by the US automaker on Wednesday, Trump announced Thursday that he would suspend tariffs on many people, not all Mexican and Canadian goods.
Canada's retaliatory tariffs are expected to be in effect, at least for now. It is unclear whether Mexico will proceed with planned tariffs on US goods, which were expected to be announced on Sunday.
Turnabout was amazing. Trump initially argued that he would not consider tariff exceptions, and praised them at length during his speech to Congress on Tuesday.
The White House hasn't said why Trump made him change his mind. However, the shock that his tariffs were caused by the stock market could have entered his decision.
Trump certainly attracted a lot of attention in the market. He frequently touted the record highs that the stock market reached during his tenure, and appeared to directly reflect the strength of his economic policy.
It is worth mentioning that the president has little control over the economy, and Trump took office when the economy was already quite strong. However, his decisions often appeared to be influenced by the stock market.
In 2018, he posted on social media, claiming that Federal Reserve Chairman Jerome Powell is driving the stock market, publicly criticizing Federal Reserve Chairman Jerome Powell for raising interest rates. “The only problem our economy has is the Fed. They don't have a touching touch with the market,” he posted on social media.
And in early 2019, when the market was soaked in response to Trump's tariffs on China, he either came back or delayed some of the tariffs.
His 2017 corporate tax cut appears to be designed to be market-friendly, reducing the maximum tax rate from 39% to 21%, and investors hope to extend these cuts this year.
Another economic indicator that could have influenced Trump's tariff policy is the benchmark known as the 10-year Treasury bond yield, what the president appears to have developed a new focus in his second term.
That yield is the interest rate the federal government pays annually to Treasury bondholders on loans that mature 10 years later.
Financial yields over the decade are considered an important indicator of the strength of the US economy and affect all borrowing costs, ranging from the $12.6 trillion mortgage market to the $5.8 trillion bank loans. The current yield is around 4.2%.
That rate is not set by the government, but is determined by Wall Street through the auction process. If financial institutions feel good about the US financial outlook, their bids at these bond auctions may be low. Those bids may be higher if they predict economic turbulence and stare at the national debt crisis, as is now.
Shortly after Trump's reelection, the 10-year financial ratio rose sharply. It came down since peaking in January, but rose again amidst the uncertainty and fear created by Trump's tariffs.
Treasury Secretary Scott Becent said lowering Treasury yields could provide financial relief to hard-working Americans, and Trump announced a “big, beautiful drop” of Treasury yields during his speech to Congress Tuesday.
It's hard to say that Trump is definitely pushing for tariff policy making. However, based on past behavior, stocks and bond markets seem to be key elements to watch.
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