The financial markets are too relaxed about Donald Trump’s policies. So said Jamie Dimon, chief executive of JP Morgan Chase, the world’s biggest bank, at an event in Dublin this week. Even as the US president became “tariff man” again this week – issuing threats right, left and centre – the stock markets rose higher, convinced that the worst on tariffs won’t happen and that the US economy will find a way forward.
Dimon is an ace communicator – crystal-clear and opinionated – and the word he used to sum up the current mood of the market is “complacency”. And as investors are, in effect, betting on the economic outlook, the point is that we have all become so fed up and disorientated by Trump’s constant tariff threats that they have become some kind of background noise.
While the Liberation Day announcement in early April caused shares to tumble and bond markets to shake – leading to a brief Trump retreat – stock markets have made ground strongly since and this week’s flurry of threats caused barely a ripple. Everyone seems to be working on the assumption that Trump, in most cases, won’t go ahead. After all, amid all the noise this week, the deadline for trade deals to be done was pushed out from this week to August 1st.
Trump, on the other hand, is taking the rise in US shares to record highs as a vote of confidence in his policies. Indeed, he has become so encouraged that he has taken to issuing unilateral decisions on tariffs relating to various countries, without waiting for negotiations at all. Something, you would have to think, is going to have to give here sooner or later. Because the reality is – as has been the case all along – that Trump’s policies are contradictory, illogical and hugely risky.
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That doesn’t meant that a recession is definitely on the way. But it does mean that Trump’s tariff madness is going to cost US businesses and consumers and that his budget bill will pile on extra national debt, leaving the US more reliant on bond investors to fund the gap between spending and revenue. And we know how fickle they can be.
Markets tend to move in waves, driven as much by mood as by new facts or data. What is taken as positive one day and seen as a reason to buy can turn around the next and be seen as supporting the case to sell. This is rationalised at the time by a particular piece of information – the latest US jobs report, EU inflation figures or the latest outpouring from the White House on tariffs – being better or worse than “the market” expected at the time.
This week the markets’ attitude to Trump’s announcements is they “could have been worse and probably won’t happen”. In a different mood, the interpretation might have been that the US president is doubling down on his dangerous trade war.
Markets can remain detached from so-called fundamentals for long periods – and there is a host of academic studies on this. But the mood can turn on a sixpence, too, as facts that have been hiding in plain sight become the focus: like the risks from tariffs and the extraordinarily narrow economic path that the Trump administration is going to have to walk in the months ahead if something is not to go seriously wrong. Pressure on Federal Reserve Board chair Jay Powell to step down also has the potential to unnerve the markets.
You can argue, or hope, that the worst will be avoided. That Trump can somehow navigate a way to pursue his tariff agenda while avoiding big economic damage and keeping the markets on board. But you can’t say that Trump has found some kind of magic formula.
Just look at the figures. The average US tariff rate – according to researchers at Yale University – is now around 17 per cent, the highest since the 1930s. They calculate that this will add 1.8 per cent to inflation, costing US households $2,400 (€2,050) this year, with particular effects in areas such as clothing and footwear. Growth is hit, unemployment will be higher. Trump needs the cash to help shore up his budget. But look at the cost.
Perhaps the time lag before the economic impact is fully evident is one factor in the lack of market reaction and the general view that tariffs will go up a bit and we will all be okay. And perhaps we will all muddle through.
In Ireland, for example, economic indicators for growth and consumer spending are holding up, even though sources say that more recently there is a widespread slowing in investment and signs of the same in hiring. But here, too, familiar concerns remain. Ireland has escaped the worst of the tariff hit so far – suffering an additional 10 per cent on most exports to the US, but with pharma excluded.
But the dangers ahead are clear, with Trump getting more bullish on generalised tariff threats as the EU/US talks come to a head and the story in relation to pharma still to play out, as the US president signals a longer-term push to get investment back “home.”
This does not mean the sky is about to fall in on the Irish economy. But as well as short-term uncertainties and the risk of rising transatlantic tensions, the brand of economic nationalism being peddled by Trump does pose longer-term issues in terms of trade with the US and investment from American companies. Ireland will hope for some accord between Washington and Brussels and for damage-limitation on pharma, but there is a lot to play out here.
And as it does, the domestic economic debate, like that in the financial markets, seems strangely divorced from the risks. Ministers have put in spending demands for the new National Development Plan – the State’s investment programme – billions of euro in advance of what will be available. There is no sign of a wider Cabinet agreement on the need to slow down the growth in day-to-day spending. Budget ministers Paschal Donohoe and Jack Chambers make the case, but are other ministers – including the Taoiseach and Tánaiste – bought in?
Trump’s meanderings on Truth Social and increasingly bizarre policies are not just some kind of reality television show. Jamie Dimon has a point. We have all become a bit complacent.
