TEMPORARY STRUGGLES?
There’s a case to be made, of course, that the market’s struggles are temporary.
“The market and the economy have just become hooked” on public spending, Treasury Secretary Scott Bessent told CNBC on Friday (Mar 7). “There’s going to be a detox period.”
While Trump’s trade policies have unsettled markets, some commentators argue that they are trade-war theatre. The president, they assert, can revive markets in the back half of the year by turning investors’ focus to tax cuts and deregulation, campaign promises that Wall Street generally sees as pro-growth.
Equally, it’s hardly unusual for technology stocks, which have been on a tear, to take a breather – dragging the Nasdaq 100 close to a 10 per cent correction.
Maybe so, but there are plenty of risks. Politically, Trump promised during the campaign that he’d bring about a wave of reshoring, and it’s unclear that he’ll be willing to back down from tariffs entirely, particularly as it concerns China.
That would leave companies facing a costly and time-consuming process of reorienting supply chains to meet Trump’s standards.
At the same time, taxes and deregulation will require the hard work of political consensus-building.
Even with control of Congress, Republicans’ narrow House majority probably isn’t large enough to make the process easy. Trump will have to convince deficit hawks in his own party that they should look past the soaring national debt and grant Americans US$4.5 trillion in tax breaks over a decade.
Even if the politicians sign off, bond market vigilantes may decide that they have other plans.
