After a black week, with losses exceeding $10 trillion and growing fear of inflation or a recession, the markets seemed ready to stabilize on Tuesday, clinging to what they interpret as a significant change in the recently implemented tariff policy. Or at least, a softening of the Trump administration's stance, increasingly open to negotiating individually with each country or bloc under seemingly less harsh conditions. "The president's message has been clear. To countries around the world: bring your best offer, and he will listen," his spokesperson said on Tuesday. However, the idea that fueled purchases was only a mirage, and the joy did not last until the end of the day.
In a terrible end to the session, with a 180-degree turn reminiscent of the 2008 crisis, the main US indices, unlike European or Asian ones, wiped out all the day's gains, reinforcing the feeling that they are still far from lows, that the enormous volatility could worsen further. And that the White House's stance is not going to end well.
The Dow Jones, which had risen by 1,461 points at the start of the day, turned around to lose 0.8%. The S&P 500 fell twice as much, by 1.6%, below 5,000 points for the first time in a year. And the Nasdaq, home to major tech companies, plunged another 2.1%, after both had risen by over 4%. The stock market is down more than 12% since the "day of liberation", worse than all developed economies except Italy or Singapore. The benchmark index is once again approaching bear market territory, having plummeted 18.9% below its mid-February peak.
Rallies up and down, highly sensitive to any news. Surging with any conciliatory comments from the Treasury Secretary or the Commerce Secretary, plummeting with news that China will face 104% tariffs starting midnight. "I think the Chinese escalation is a big mistake," said Scott Bessent during an interview on CNBC's Squawk Box. "What do we lose if China raises tariffs on us? We export them a fifth of what they export to us, so they lose out," he said as 10-year bond yields rose slightly more, as Beijing quietly unloads paper in its silent response.
Money wants to hold on to the possibility that the trade nightmare will end with agreements, but Trump does not present it as a typical negotiation, not even as a transaction, in the spirit of the businessman he always boasts of being. What the administration is increasingly outlining is something very different. A kind of toll - the most critical will call it extortion - from the world's largest power, not only economically but also militarily and nuclear. And this is the key. "China also wants to reach an agreement, but they don't know how to start. We await their call. It will happen! God bless the USA!" the president posted on his social media.
Over the weekend, investors close to Trumpism, like Bill Ackman, clearly distanced themselves from the idea of a total trade war against the entire planet, with tariffs of 20%, 50%, 80%, or even 104%, as in the case of China, after the White House confirmed the previous day's Twitter threat. But these same people are beginning to understand the plan, which is more complex, twisted, and time-consuming. "How about this? Let's keep general tariffs at 10% for the special privilege of doing business with the US to compensate for the investments we have made in global defense, health, and other areas, and to compensate our country for historically unfair trade practices that have contributed to our huge deficits and national debt. We maintain pressure on China to address materially unfair trade practices, intellectual property theft, currency manipulation, and other practices that have harmed our nation. And we pause the implementation of reciprocal tariffs for 90 days to have time to engage in private negotiations with other countries, focusing first on those whose tariffs and practices have materially interfered with the competitiveness of American manufactured products in their markets," the billionaire wrote on his social media.
That's the idea. Trump wants, demands, revenues. That the rest of the world pays him, with the argument, excuse, or insult to intelligence of turning the trade deficit, bilateral or aggregate, into "theft or violation," in his words. And to achieve this, he is willing to endure a stock market crisis of up to 25%, for example, like the one Ronald Reagan faced in his first term, if the cost of debt does not skyrocket. Or to disrupt the international system, something that the markets do not quite believe. Three sessions of devastating losses were a clear sign of unease, but if Trump's move succeeds, with the rest of the world not responding and thus avoiding a trade war, it might be something manageable.
The real danger for investors is that everything blows up, which would guarantee a recession for the United States, but inevitably for many others. That recession is not priced in, as shown by the ups and downs of this Tuesday, with the Ibex having its best day in two years. But if everything worsens, and does so quickly, the downturn would be much greater than what has been seen so far.
Meanwhile, Trump's economic team is starting to celebrate what they consider a series of triumphs. Israeli Prime Minister Benjamin Netanyahu bowed on Monday at the White House, saying that his country will remove all trade barriers to American products and will also "quickly eliminate the trade deficit." South Korea, while monitoring the situation, has not announced reciprocal tariffs as retaliation, ruling out partnering with Japan or China for a joint response, as it seemed to have hinted at a few days ago. And many other leaders are glued to the phone begging for meetings with the "leader of the free world." Next week, Italian Giorgia Meloni or Salvadoran Nayib Bukele will be visiting Washington.
Trump, as explained on Monday in an important speech by Stephen Miran, the President of the White House Council of Economic Advisers, sees the international system not as a place where economic actors cooperate, benefiting mutually, but as a kind of elite club where the US is responsible. For the facilities, security, the currency that allows everyone to exchange goods and services. Previously, according to that logic, Washington maintained that leadership role because it was beneficial, maintaining hegemony, with a tailored national security architecture, with the dollar as the international reserve, which in practice also allowed it to maintain unlimited fiscal deficits and debt.
But not anymore. Trump wants each country to pay a price, a toll, a subscription in exchange for all those services, whether good, bad, or worse. And tariffs are the way to collect it. "I am an economist and not a military strategist, so I will focus more on trade than on defense, but both are deeply connected. Let's imagine two countries, for example, China and Brazil, trading with each other. Neither of these countries has a reliable, liquid, and convertible currency, making trade between them difficult. However, by being able to operate in US dollars backed by US Treasury bonds, they can trade freely and prosper. This trade is only possible thanks to US military might, which guarantees our financial stability and the credibility of our loans. Our military and financial dominance cannot be taken for granted, and the Trump Administration is determined to preserve it," he stated at the Hudson Institute. The 'American peace' has a price, and it is non-negotiable.