Whether this tariff pause for all but China will extend beyond the initial 90 days Trump earmarked remains to be seen though — likely he doesn’t know himself yet. As his former National Security Adviser John Bolton warned recently, Trump’s dealings are “transactional, ad hoc, episodic.”
However, there’s little doubt it was investors offloading U.S. debt and demanding a high premium for buying U.S. Treasuries that compelled Trump to see some sense. The plunging stock market, meanwhile, didn’t seem to have any effect on him, with his senior trade adviser Kevin Hassett simply shrugging his shoulders, saying it was “no big deal.”
But spiking borrowing costs compelled a heavily indebted U.S. government to change its mind. Question is, will it be enough to possibly keep this from happening again?
The market mayhem sparked by Trump’s “Liberation Day” tariffs was a déjà vu moment for Britain’s former Chancellor of the Exchequer Kwasi Kwarteng, who infamously tanked the U.K. economy with a radical, unfunded tax-cutting mini-budget in 2022. And much like he and his boss, then-Prime Minister Liz Truss, were judged by bond vigilantes, so too was Trump, Kwarteng said in a television interview.
“The bond market, as was the case in my and Liz Truss’s experience, that was the key … I think that was critical because I don’t think [Trump] really minds about the stock markets in the way that he would about the bond market, because that directly affects the government’s ability to borrow, the federal government, and also mortgage rates in the U.S., because that’s going to be pushing up mortgage rates for his base,” he added.
In the U.K., the thumbs-down from the masters of the universe meant Truss had to quit after being prime minister for just 44 days. Trump is president for the next four years — that is, unless a thrice-shy Congress impeaches him yet again and that’s not going to happen, at least not this side of the midterms. (Parliamentary systems do, indeed, have some advantages!)