Why everything's coming up Trump on the economy
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Why is President Trump escalating a trade war that had seemed dormant, threatening high tariffs on major trading partners, imported copper, and pharmaceuticals? A better question is "why not?"
The big picture: Economic, market, and policy developments have been a wind at the president's back in the last two months. The threatened downsides of an erratic policy process have not materialized, and economic naysayers — for the moment, at least — look silly.
- This backdrop helps explain why Trump feels empowered to follow his instincts, which have long tilted toward aggressive use of trade barriers.
Flashback: Three months ago, stock and bond markets were in freefall, forecasters issued recession predictions, retailers warned of empty store shelves, and the outlook for Republicans' signature tax legislation was decidedly choppy.
- None of that is true today.
State of play: The unemployment rate is 4.1%, a tick below its April level. Inflation readings in April and May were lower than forecasters expected. (June inflation data starts rolling in next week.)
- The stock market is hovering near record highs, and 10-year Treasury yields are below their levels on Inauguration Day in January.
- While supply chains have been whipsawed by the on-and-off trade war, retailers have thus far been able to maintain steady availability of imported profits at normal prices. It reflects both pre-tariff inventory buildup and the willingness of suppliers and importers to absorb much of the cost of tariffs.
- The One Big, Beautiful Bill Act was signed into law on July 4, a self-imposed deadline from the president that many in the D.C. smart set thought was unlikely to be met.
- And while the Federal Reserve isn't cutting interest rates as rapidly or as much as the president would like, a September rate cut looks more likely than not.
Reality check: The U.S. economy is a big, complex beast. It will take time for companies to adapt their pricing and supply chains to the kinds of massive shifts in trade policy seen so far in 2025 — and promised in the weeks ahead.
- The president has been quick to delay or adjust tariffs when the signs of pain become too apparent, evident in climbdowns on April 9, May 12, and this week.
- In other words, part of the reason April's dire predictions have not materialized is that White House policies have adapted.
Of note: Just Tuesday, Trump threatened a 50% tariff on copper and up to 200% on pharmaceuticals.
- The threats "had effectively zero impact on broader equity valuations, interest rates or the value of the dollar on Tuesday afternoon," wrote RSM chief economist Joe Brusuelas in a note.
What they're saying: "One gets the sense that although sector tariffs remain a risk to the economic outlook, corporate margins and commodity prices, investors do not believe that they are going to turn over the economy at current levels," Brusuelas wrote.
- "Eventually," he added, "the laws of economic gravity will pull those valuations back to earth as firms' margins are compressed, inflation increases and real disposable incomes fall."
The bottom line: It's so far, so good for the Trump 2.0 economy. But that's no guarantee it will stay that way.
