“There is a Providence that protects idiots, drunkards, children, and the United States of America”.
-Otto von Bismarck
Conventional wisdom within Economics academia has been that a single president cannot materially affect the long-term outlook for the United States. True, there are spending programs, wars, tax bills, and other significant directives. However, the United States economy is composed of all the natural resources, human capital, manufacturing, and technical capabilities within. All of this exists under the framework of a strong rule of law and well-defined property rights, developed capital markets, and a unique entrepreneurial spirit.
The stock market bottomed in early April as consensus discounted Donald Trump’s ability to single-handedly establish a new world order of trade wars, lower global output, and $120 t shirts manufactured in the U.S.A. It was a blood-in-the streets moment reminiscent of the COVID shutdown, the Lehman bankruptcy, and Tech Bubble 1.0. Strategists noted panic-level fear in investor surveys, volatility- and volume spikes consistent with prior major market lows, and washed-out breadth indicative of indiscriminate selling. As stocks declined, investors also sold U.S. Treasuries, raising the question of faith in the U.S. government to pay its debts if tariffs disrupted future growth.
When Trump finally blinked, he acknowledged the dire feedback loop he had created. Trump himself said, “The bond market is very tricky” and “People were getting a little queasy”. Reports circulated that Trump reversed course after viewing successful businessperson Jamie Dimon on Fox News saying that recession is now a “likely outcome” of the new tariff strategy.
History will examine whether Trump brought us to the edge of total disaster or whether this was his opening advance in correcting the wrongs of globalization. Economics texts also talk about comparative advantage as law, tariffs as almost always a bad idea, and seamless trade as universally beneficial. This is why Trump needs to invoke “national security” as his reason for tariff implementation, as this is the one legitimate example where tariffs make sense. But Trump also believes that this is a national security issue beyond just where semiconductors are manufactured. Trump is a populist Republican and the America he wants us to return to from an economic perspective is closer to the one where Ohio, Pennsylvania, and other red states had respectable manufacturing jobs for its people. Trump is speaking directly from ideas laid out in the writing of his first U.S. Trade Representative, Robert Lighthizer. Lighthizer, an Ohio native, describes how a modest level of tariffs that reflect the pre-globalization world would have saved hundreds of thousands of jobs in places like his home state. He recalls a time when people in middle America held respectable, well-paying jobs in auto parts plants, not forced to hold positions as Walmart greeters and Chili’s servers. He points to the blight of midwestern towns as the direct consequence of trade gone too far. Whether we are talking about universal basic income or a level of protectionism, there will be a price to pay. From this perspective, we should question whether Trumps aims are far off from anti-gentrification movements we see in American cities.
Regardless, Trumps’ ill-executed tariff program was not viewed as an empty flex. In the past few months, the media has once again re-examined whether “American exceptionalism” remains durable. In January, a superior AI model supposedly run on Chinese-developed chipsets sent many into a panic- the end of the U. S.’s lead in everything was nigh. So, when Trump declared war on the rest of the world, the idea of America’s foundational role was cast into doubt.
The reality is that Trump is playing with house money and it is easier to bankrupt a casino than the U.S. The idea of the United States losing its "exceptionalism" — particularly in relation to U.S. Treasuries as a global safe-haven asset — has been discussed in various forms for decades — often tied to economic, geopolitical, or policy shifts. Past episodes questioned Treasuries’ position, yet their status persists due to unmatched market depth, dollar centrality, and geopolitical clout. A few examples:
· Early 1970s — Nixon Shock and End of Bretton Woods.
· 1980s — Rising Deficits and Dollar Volatility.
· Late 1990s — Euro’s Rise as a Potential Rival.
· 2008 Financial Crisis — Cracks in Confidence.
· 2011 — Debt Ceiling Crisis and Downgrade.
· 2020 — COVID-19 and Market Stress.
I do not mean to downplay further risk to the financial markets. If Trump’s trade war results in a recession, then the market would create new lows according to the historical average. For example, a typical peak-to-trough decline of 30-35% would mean an S&P 4150 or down around 25% from current levels.
First quarter’s earnings from corporate America were inconclusive on the recession point other than highlighting broad uncertainty. Companies detailed tariff exposure as well as internal mitigation processes. Companies described the near-term environment as manageable with actual effects potentially appearing in the second half of this year or 2026. And thus far, there has not been a material change in demand. Airlines withdrew guidance citing a softening environment, but there will always be those that blame their own problems on the headlines. For these reasons, the S&P 500 earnings forecast revisions for 2025 have stabilized at around $265 (as of mid-April), down from $270 earlier in the year. This puts the market at a 21x P/E multiple on 2025 earnings. Additionally, macroeconomic data has also remained resilient. Thus, we are all still waiting for hard evidence of the tariff program’s effects.
The coming months will give more direction to the next 20% move in the stock market. Early trade deals may indicate that Trump is successfully picking up dimes off the curb of international trade and correcting long-standing imbalances. Recall that Biden did not reverse the tariffs that Trump put in place on China during his first term. Perhaps there is a cohesive agenda that is being delivered in a typically coarse Trump style. As usual, we will be trusting in the resiliency of the American consumer to provide businesses with confidence to move forward.
Until then, we are wishing everyone health and peace.