The soon-to-be President has a keen interest in the financial sector, significantly impacting the decisions he makes. Uniquely, his keen eye for the markets offered a kind of self-regulation to his presidency, a fact that has not gone unnoticed. Many are still trying to grasp the full implications of President Trump’s proposed tariffs on China, Mexico, and Canada, which certainly represents a shift from the norm in global political affairs.
The President-elect has a well-documented history of following the financial markets closely. During his first term, he often extolled the blossoming of the stock market, attributing this growth to his policies. Stocks have continued to show strong performance this year, anticipating his return to the Oval Office with unabated enthusiasm.
Analysts have dedicated extensive efforts to address a pertinent question since Election Day: What will President Trump’s return mean for the markets? However, an equally crucial question is seemingly not getting addressed often enough: What role will the markets play in regulating the sweeping powers of the President?
With a Republican majority in both the House and Senate, coupled with a conservative-leaning Supreme Court, the institutional restrictions President Trump faces are noticeably fewer than during his first term. Given this political landscape, it is a valid query to wonder whether financial markets will necessarily step into a more influential role within legislative affairs.
One fascinating element to consider is that financial markets have habituated – one may even say ‘normalized’ – actions or statements from President Trump that might otherwise trigger strong negative reactions if made by other public figures. His forthright statements are often interpreted as first moves in a negotiation, a trait that is generally unique to him.
Indeed, from a financial perspective, Mr. Trump can move forward with many of his campaign promises uninhibited, so long as the economy continues to grow and corporate profits continue to climb. The past week has served as an excellent example of this interesting phenomenon.
Mr. Trump recently announced Scott Bessent, a figure well recognised in finance circles, as his choice for Treasury Secretary. The markets reacted positively to this news, with stocks and bonds rallying upon the announcement. However, soon after, Mr. Trump took to social media to proclaim his intent to impose new tariffs upon his return to office.
While these proposed levies are generally regarded as a negative development by many economists, the markets seemed largely undisturbed by the news. Typically, tariffs would be expected to lead to increased prices, negatively impact consumers, hinder economic growth, and disrupt global trade. However, despite these potential consequences, the stock market confidently marched on, hitting another record with the S&P 500 the following day.
Given that Kevin Hassett, whom Mr. Trump selected to head the National Economic Council, is a seasoned economist with strong traditional credentials, many feel confident that he will aid in continuing to guide the stock market to new heights. Despite acknowledging that tariffs could potentially hamper economic growth, Mr. Hassett has expressed optimism for the future.
In reference to tariffs and immigration, Mr. Trump has been unswerving in laying out and defending his stance. On the topic of drug trafficking and illegal immigration, he forthrightly addressed his intentions to introduce a 25% tariff on goods from Canada and Mexico until these issues are addressed.
President Trump didn’t stop there, he also took aim at China, threatening a 10% tariff on Chinese goods due to what he asserts is China’s role in supplying illegal drugs. He expressed disappointment with China for not upholding promised penalties against drug trafficking. Trump’s assertive approach towards these issues sheds light on his ambition to disrupt global norms to safeguard American interests.
These statements sent ripples through the currency markets, leading to a depreciation of the Canadian dollar, the Mexican peso, and intense speculation about the future value of the Chinese renminbi. Yet all things considered, the audacious moves by Mr. Trump have only invigorated discussions about his dynamic approach to global affairs.
While many businesses, investors, and countries grapple with understanding the implications of Trump’s tariff policies, the US stock market remains unperturbed. The S&P 500 has seen a jump of over 30% in the past year, a testament to the confidence the market has in Trump’s leadership.
While the financial markets won’t always align perfectly with Trump’s vision, I don’t necessarily view this as a cause for concern. Neither am I banking on the stock or bond markets to become fail-safe barricades against overexertion of power, in the way that traditional political institutions might.
That said, I trust that the upcoming administration, led by a business-savvy president, will do its utmost to uplift the markets. And if it becomes apparent that Trump’s policies are obstructing the ability of corporations to reap profits or investors to flourish, I have faith that timely and adequate adjustments will be made.