Trump is undermining his own economic agenda, pushing for the highest tariffs in history while simultaneously calling for interest rate cuts to stimulate the economy, and the market is responding harshly with soaring interest rates.
As an important figure in economic policy, Trump should understand that high tariffs and low interest rates are difficult to achieve simultaneously. Yet, he attempts to balance both, believing he can adjust market prices through tariffs while creating a loose business environment through administrative means.
When Trump implemented large-scale tariff policies, the market reacted violently. Now, the focus is on whether he can correctly understand these consequences. If he continues to defy economic laws, it will inevitably harm key parts of his economic planning.
Before the tariffs took effect, the U.S. economy was in good shape. The inflation rate fell from 2.8% in March to 2.4%, close to the Federal Reserve's target of 2%. Economic growth was stable, and the job market was also decent. The Federal Reserve's desired 'soft landing' seemed to be on the verge of realization. Economist David Rosenberg pointed out that during that time, both consumer and producer price indices were slowing down. According to economic principles, declining inflation typically leads to lower interest rates, which not only provides room for the Federal Reserve to cut rates but also reduces the inflation premium demanded by bondholders, reflecting a moderate slowdown in economic growth, thereby lowering the cost of funds.
However, after Trump announced large-scale tariff measures on April 2, the market situation deteriorated sharply. In just one week, the yield on benchmark government bonds surged from 3.9% to 4.5%. The market generally believes that Trump's tariff policy will drive inflation beyond expectations, hinder U.S. economic development, and reduce asset returns, forcing the U.S. to raise interest rates to attract investors to hold U.S. Treasury bonds and other assets.
Trump, who was once a highly credit-dependent real estate developer, has always hoped for lower interest rates. To this end, he has repeatedly called for the Federal Reserve to cut rates to mitigate the negative impact of tariffs on the economy, and his Treasury Secretary has also revealed his concern over the yields on 10-year Treasury bonds.
Trump's tariff policy has become an obstacle to the advancement of the U.S. economy. His decisions not only test the resilience of the U.S. economy but also cause fluctuations in the process of global economic integration. Economic laws cannot be violated; how Trump chooses going forward will have a profound impact on the U.S. and even the global economic landscape. The direction of the world economy may hinge on his thoughts.
