Trump is no longer swayed by the stock markets

On the day of the U.S. presidential inauguration, a CEO of a top U.S. tech company told me that while he may be affected by retaliatory tariffs, he believed any trade war would be short-lived. "Trump acts based on the Dow's reaction," he said – what the market called the "Trump put." He was confident that market pressure would influence policy decisions.

This meant that whenever the White House issued a statement that damaged market sentiment, the president would back down after seeing the stock market fall. However, these assumptions have now changed after the president gave television interviews downplaying the extent of the market's influence on him. The shift in attitude is significant.

Just one day after U.S. stocks fell sharply over fears about the impact of Trump's policies, the president decided to double tariffs on Canadian steel and aluminum in response to rising Canadian power charges in New York, Minnesota, and Michigan, amounting to roughly $100 per bill. This followed Ontario Premier Doug Ford's announcement of a 25% surcharge on electricity exports to the U.S. and threats to completely "cut off" supply. The situation escalated quickly.

President Trump stated that he is rebuilding wealth based on decades or even a century into the future, which cannot be measured by the quarterly performance of U.S. stock market giants. The White House, along with Treasury Secretary Scott Bessent's comments, is signaling to the market that the president now has a certain tolerance for short-term market and economic pain. This fundamentally alters the calculation of the situation and introduces new risks.

There are two other factors at play. There is evidence that U.S. economic sentiment may be experiencing an actual reversal, raising questions about a recession. The Atlanta Federal Reserve's latest real-time analysis predicts a slowdown in the U.S. economy in the first three months of this year. Government spending cuts could also contribute to this outcome, but private sector sentiment has also taken a hit, especially due to the uncertainty surrounding tariff policies. These factors compound the economic challenges.

Most importantly, uncertainty can have a severe impact. Policies are changing daily and can even be suspended retroactively. Key U.S. government departments are not entirely clear on the White House's direction. Furthermore, in the case of Canada, potential elections suggest little incentive for compromise. The lack of clear direction is unsettling.

Indeed, what is there to compromise when Trump says he wants to use economic leverage to make his northern neighbor his "51st state"? The direction here is that the intensity and scope of the trade war will escalate. Based on the "reciprocity principle," new trade barriers could be imposed on the EU in three weeks. The potential for further escalation is high.

As other countries see signs of renewed U.S. inflation, they will be more inclined to exacerbate inflation, letting American consumers feel the consequences of government decisions. In the past two weeks, the world has learned that President Trump is serious about tariffs, even against his allies. These tariffs have been applied on a massive scale. The global economic implications are significant.

Major trading partners have retaliated in kind and have the incentive to raise the stakes. The White House now hopes to convey that it has a high tolerance for short-term economic and market disruption. All roads lead to April 2, the day "reciprocal tariffs" could be announced, and currently, these tensions do not seem to be heading towards a truce, ceasefire, or suspension. The outlook remains tense and uncertain.