Trump’s tariff policy is “straightforwardly bad” for US markets and economy: Jonathan Levin

Key topics:.Trump's new tariff policy risks economic damage with no quick resolution.Market hopes for Fed rate cuts may be unrealistic in the current environment.Tax cuts and deregulation likely won't offset the impact of tariffs quickly..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Jonathan Levin ___STEADY_PAYWALL___.President Donald Trump's new reciprocal tariff policy is straightforwardly bad for the US economy and markets. The only conceivable reason that the S&P 500 Index was down just 4% on Thursday is that investors still don't believe it will stick. Unfortunately, there's no quick way out of this quagmire. No easy off-ramps via negotiation. No stock market "put" from the Federal Reserve. And no federal tax cuts or other stimulus that can sufficiently offset the hit..Let's take those issues one at a time..In the very earliest days of the second Trump administration, investors saw The Art of the Deal version of Trump use short-lived tariffs for pure coercion. Perhaps the clearest example was when Trump threatened Colombia with 25% tariffs over its refusal to accept deportees transported under degrading conditions. Within days, Colombia accepted the deportees and the tariffs went away. Anyone hoping for that outcome with Trump's "reciprocal tariff" policy is, sadly, delusional..Trump, who has been talking up the merits of tariffs in trade policy since the 1980s, won the 2024 election on a Big Tariff platform. The nature of his latest proposals basically forecloses on the possibility of a deal that all parties can agree to quickly. His broadsides hit just about every country around the world, and the tariff rates were based on the false premise that bilateral trade deficits are inherently bad (they're not). They punish lots of legitimate bad actors in trade (such as China), and many others (friends in Latin America) that have mostly just tried to play the role of good neighbors..It would be one thing if the White House had set the new tariffs to match other countries' tariffs on us, but that's not what it did. The actual tariff rates ended up being much higher, in many cases, than pure tariff reciprocity would imply. As Bloomberg News' Josh Wingrove has written, the formula essentially divides a country's trade surplus with the US by our total imports from that country, based on data from the US Census Bureau for 2024..In other words, some countries will get hit hard simply because they sell a lot of goods that Americans desire, irrespective of their actual policies. The Trump administration has argued that countries use policies such as food inspection standards and value-added taxes as shadow barriers to trade (which is highly controversial to begin with). But the actual tariff policy announced didn't account for those things, so there's no reasonable basis for negotiations. (Despite the unfairness, the economic impacts are so damaging for some economies that they will probably come to the table anyway. But the odds of a swift outcome that satisfies both sides are close to zero.).Next, some market participants might cling to hopes of major monetary policy support, but that's a fantasy as well. At the time of writing, futures trading implied about three Fed cuts this year, with better than even odds of a fourth. On the one hand, 0.75 to one percentage point of cuts over many months would hardly be the sort of stimulative bazooka that markets have come to expect in times of extreme stress — the so-called "Fed put" made famous during the chairmanship of Alan Greenspan..On the other hand, even the three or four cuts that are priced in may be too much to ask. While tariffs represent a supply-side shock that central bankers would typically look past, they come after a period of sustained inflation and shaky household inflation expectations. Given Chair Jerome Powell's appreciation for Fed history, I'd bet that he will opt to keep policy rates on the high side rather than let inflation permanently settle into the American economy. A misstep on inflation would surely land him next to Arthur Burns on the Fed Wall of Shame..Lastly, there's the belief that the White House, together with Republicans in the House and Senate, is about to pivot to more market-friendly policy, including tax cuts and deregulation. Maybe. But those consensus-building efforts are likely to prove much more of a slog than the executive cram-down that Trump just carried out in the form of tariffs..Trump may manage to extend the expiring provisions of the Tax Cuts and Jobs Act of 2017, but those won't feel like new stimulus to households struggling with a potentially rocky labor market and higher prices. I'm skeptical that the fiscal hawks in Trump's own party are likely to cosign on other goodies (including no tax on tips and tax-deductible auto loans) that he proposed on the campaign trial. Deregulation? That may pay economic dividends in the years to come, but it can't match the speed of destruction of the tariffs. And how exactly will Trump's crack team of economic policy experts win support for all of this while they're juggling trade negotiations with countries all around the world?.Small investors still have an appetite for "buy the dip" strategies, wagering that the night is always darkest before dawn. Bloomberg's Bailey Lipschultz reported that they are piling into volatile stocks including Nvidia Corp. and the Vanguard S&P 500 ETF, according to data tracking the users of Fidelity Investments' brokerage. .I think they will be disappointed. I hope I'm wrong, of course, and history often frowns on the columnists who write hyperbolically negative pieces on the day of big selloffs. But then again, most of that recent history was written at a time when technocrats still held sway in the White House and the "Fed put" was alive and well. I'm not sure that we're living in a comparable time..Read also:.Joel Pollak on Trump's 30% tariff shock for SA – BEE + motor sector's 30% protection targeted🔒 RW Johnson: Between a rock and a hard place – South Africa's stand off with Trump🔒 The FT view: Trump's tariffs – America's astonishing act of self-harm.© 2025 Bloomberg L.P.

Trump’s tariff policy is “straightforwardly bad” for US markets and economy: Jonathan Levin

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