Trump: Mastermind or Idiot?
Trump’s Economic Gamble: Tariffs, Trade Wars, and America’s Global Repositioning
Donald Trump’s approach to the presidency reflects the negotiation tactics and deal-making philosophy he outlined in his 1987 book, The Art of the Deal. This mindset—rooted in using leverage, projecting strength, embracing flexibility, and maximizing outcomes—shapes how he governs, interacts with Congress, engages foreign leaders, and pursues his mandate. There are no signs of him going against his core principles.
Before delving into current affairs, let’s take a moment to reflect on Trump’s first presidency, examining the actions he took and their impact on the market.
The S&P 500 experienced several key downturns in 2018 (second year of Trump’s presidency), with notable declines occurring at different points throughout the year:
February 2018: The market saw a sharp correction, with the S&P 500 dropping over 10% from its January highs. This was largely fueled by concerns that the Federal Reserve would raise interest rates more aggressively than expected, leading to higher borrowing costs.
October 2018: A significant sell-off occurred, with the S&P 500 falling more than 6% in the month. The downturn was triggered by Federal Reserve Chairman Jerome Powell’s comments that interest rates were “a long way” from neutral, signaling further rate hikes. The market also reacted negatively to trade war tensions (re: tariffs on imported aluminum, steel, and other goods) and concerns about slowing global economic growth. Moreover, the five major tech companies - Facebook, Apple, Amazon, Netflix and Google - came under increased pressure from regulators amid news reports about data privacy and the tech sector’s role in the 2016 presidential election.
December 2018: The worst month of the year for stocks, with the S&P 500 declining nearly 9%. The market was rattled by fears of an economic slowdown, the Federal Reserve’s monetary policy, the ongoing U.S.-China trade war, and uncertainty surrounding the U.S. government shutdown.
Overall, 2018 was the worst year for stocks since the financial crisis, with the S&P 500 ending the year down 6.2%.
Amid all this, what were the inflation rates and interest rates?
February 2018
Inflation Rate: 2.2%
Interest Rate: The federal funds rate ranged from 1.25% to 1.5%.
October 2018
Inflation Rate: 2.5%
Interest Rate: The federal funds rate was around 2.25% to 2.5%.
December 2018
Inflation Rate: 1.9%
Interest Rate: The Federal Reserve raised the benchmark interest rate to a range of 2.25% to 2.5%.
Underwhelming to say the least compared to today.
So, what changed?
The stock market rebounded in 2019 due to several key factors:
Federal Reserve Policy Shift: After raising interest rates four times in 2018, the Fed reversed course and cut rates three times in 2019, bringing the benchmark rate down to 1.50%–1.75%. This provided relief to investors and encouraged borrowing and investment.
Trade War De-escalation: The U.S. and China reached a partial trade agreement, reducing tensions and avoiding additional tariffs. This helped restore confidence in global trade.
Strong Corporate Earnings: Many companies, particularly in the tech sector, posted strong earnings, driving stock prices higher.
Resilient U.S. Economy: Despite concerns about a slowdown, consumer spending remained strong, and unemployment hit a 50-year low.
Crisis averted.
At a high level, let’s now examine the key initiatives that Trump and his administration have promised and implemented since his second-term inauguration on January 20, 2025.
Dominance and Cost Reduction in Energy
Red tape has been cut, including withdrawing from the Paris Climate Agreement, pausing wind farm permits, ending Biden’s electric vehicle mandate, and opening federal lands for drilling.
Global oil markets dictate short-term prices. Well, since his inauguration, oil prices have fell from a high of $75 to $56 per barrel. But this is mainly due to the threat of an economic slowdown as tariff threats persist.
Created with TradingView Pressure is mounting on Canada, with exaggerated claims about it becoming the 51st state. However, the underlying aim seems to be encouraging Canada to fully leverage its vast natural resources - a benefit for both parties. When China basically controls all the rare earths, it is no surprise why the Trump administration treads on this hypothetical notion.
Rebalance Trade through Tariffs
That’s right, tariffs are being used to bring countries to the negotiating table. Trump’s tariff policies have prompted several countries to engage in renegotiations with the U.S. or adjust their own trade policies in response.
The U.S. has increased tariffs on Chinese imports to 104%, a move announced by President Trump.
This is part of the ‘Art of the Deal’ - get something back, no matter how big or small, as long as the win is tangible.
The Trump administration has emphasized the "reciprocal" nature of tariffs, suggesting that negotiation could lead to reduced levels. Meanwhile, nations such as Brazil, India, and the EU have expressed interest in initiating discussions, signaling potential progress in trade relations.
Keep an eye on countries re-entering negotiations in the coming weeks. Concessions are likely to be made to address trade deficits. If Trump secures any gains, expect a media frenzy touting a “better deal,” regardless of the actual impact. This aligns perfectly with his strategy of using bold statements and media influence to shape public perception by controlling the narrative.
Bring Down Yields
If you weren’t aware, the U.S. government needs to refinance close to one-third of its entire debt. As Treasury Secretary, Bessent aims to balance growth initiatives with debt management, keeping 10-year Treasury yields below 4% to ease borrowing costs.
When fear grips the stock market, investors retreat from equities and seek refuge in safer assets like bonds. As demand for bonds rises, prices increase while yields fall inversely, creating opportunities for refinancing at lower interest rates.
I’ve previously highlighted the significance of this specific yield. It directly influences mortgage rates, corporate debt, auto loans, and student loans—factors that deeply affect everyday individuals. Additionally, businesses benefit greatly from the ability to refinance debt at lower rates, improving their financial flexibility and stability.
You can say progress has been made since the inauguration. They have no choice but to keep placing pressure down on these yields. Lower yields equal trillions in interest savings. More breathing room. Less inflationary pressure. More liquidity into the market. Up it goes!
Recently, yields have spiked dramatically, sparking significant concerns in the markets. This surge may be driven by margin calls or the actions of other countries selling U.S. Treasuries to stabilize their currencies and economies amid tariff impositions.
The Real Reason Behind the Rise in Yields
Treasuries are debt securities issued by the U.S. Department of the Treasury to fund U.S. government operations. They are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. Yields are the focus of this conversation.
A Weaker US Dollar (USD)
Trump’s stance is rooted in a belief that a strong dollar disadvantages American manufacturers and exacerbates the U.S. trade deficit by making exports more expensive and imports cheaper. You can even look back on his first-term to see the change in the USD.
In a March 29, 2025, speech in Detroit, he said, “I want a dollar that’s great for our country, not so strong it kills our companies’ ability to compete.” He’s framed a weaker dollar as key to his “America First” agenda, aiming to revive manufacturing and reduce the trade deficit.
The US 10-year Treasury yield and the USD generally have a positive correlation. Do you see the connection? If one sinks, the other will follow. Bingo! And while doing this, the USD still remains strong against other world currencies. This is called leverage.
Force the Federal Reserve’s Hand
As of the latest FOMC meeting on March 19-20, 2025, the federal funds rate target range is 4.25% to 4.5%, following a 25-basis-point cut.
Trump wants lower interest rates. This may be part of the hidden agenda.
Four rate cuts have now been priced in based on probability. This is double than what was expected.
Next Stage Targets Growth
With these foundational elements in place, the Trump administration can focus on the next steps: deregulation and tax cuts aimed at boosting business confidence, increasing real wages, and shifting reliance from public to private spending.
However, without these initial measures firmly established, advancing to the next stage becomes significantly more challenging.
Reality
This is a war of attrition versus China. Period.
The Trump administration's policy goal is clear: a strategic campaign to reposition America’s global economic role by targeting China’s export-driven economy.
But why involve the entire world in this tariff war? The answer is straightforward. Every nation benefits, directly or indirectly, from Chinese markets exporting affordable products. For instance, countries like Mexico and Vietnam rely on China for approximately 30% of their inputs to manufacture goods that are then exported to the U.S. This dependency makes China’s export-driven economy vulnerable to U.S. tariffs, which aim to force global trade partners to choose between American and Chinese markets.
The U.S. strategy is to broker deals with other nations to weaken China’s global supply chain and slow its industrial rise. With the exception of China, the U.S. holds 100% leverage over every economy in the world. By securing alliances with these countries, the U.S. could eventually compel China to yield.
The key question is: how long can China endure this pressure? Unlike Japan, the European Union, and other nations, China negotiates from a position of relative strength, as its economy is less reliant on direct U.S. trade than vice versa. Moreover, China’s economy is not driven by corporate profits, and its stock market has long been considered uninvestable. It also understands the debt burden that the U.S. has put themselves under over the past two decades.
However, China’s foreign reserves still include a significant amount of U.S. Treasuries (second largest foreign holder behind Japan). Any substantial sale of these assets to put upward pressure on U.S. treasury yields could ultimately backfire through the appreciation of the yuan, undermining China’s export strategy. Furthermore, the U.S. remains the primary end market as the largest consumer. Targeting Chinese goods directly means addressing the entire global supply chain, it means tariffing EVERYONE! Do you get the picture now?
This is why this situation can be described as a WAR OF ATTRITION—a high-risk strategy that aligns with the phrase, “Just rip the band-aid off.”
Final Opinion
A recessionary environment is likely to unfold during Trump’s tenure as the 47th President of the U.S., though not as a direct result of his actions. Instead, it stems from years of unchecked, reckless spending since the last major reset—the Great Financial Crisis. This is another reality that cannot be ignored.
There are bigger issues at hand than the STOCK MARKET! Accept it!
What Trump is attempting, however, is a rebalancing act: restructuring America’s global role and addressing the government’s debt-ridden balance sheet. His mantra, “Short-term pain for long-term gain,” reflects his confidence, echoed by his Treasury Secretary. The stock market’s prior overvaluation has only bolstered this approach, as any correction would naturally temper inflated valuations to a more sustainable level. And he must act now. Why? Trump’s drastic economic measures are being implemented early in his term, aiming to deliver positive outcomes before the next election and build momentum for the Republican Party in advance. However, this can be a high-risk strategy.
Trump’s negotiation tactics, which I’ve discussed extensively before, are rooted in leveraging power. He is undoubtedly aware of the risks associated with prolonged, unreasonable tariffs in a globally interconnected trading system—higher living costs, retaliatory tariffs, loss of political control, and declining popularity, among other potential consequences.
In my opinion, this is not a trade war, more of a trade reset. The goal is to lower trade barriers against the U.S. to buy more from them and less from China.
Lastly, let me reiterate the concept of leverage. The U.S. is well equipped to survive this in the short-term unlike most other countries around the world who will crater their economy if they do not come to the table. Moreover, the U.S. equity market was severely overvalued, so it was a great time to go all-in.
Let’s be real. The stock market's growth since the pandemic has been largely attributed to inflated prices and increased government spending under the Biden administration, with limited evidence of substantial underlying growth.
However, I recognize that if this issue isn't resolved promptly, this plan could go down as one of the worst decisions by a U.S. President. That said, if countries come to the table relatively soon, markets are likely to stabilize at more sustainable levels, paving the way for growth alongside the broader economy. While initially painful, the outcome could ultimately be reassuring.
Consider this: the two largest economies in terms of consumption are the U.S. and China. These are the key players, and ultimately, the choice lies in deciding which one to prioritize when restoring trading relations. You cannot replace one without using the other. The end.
UPDATE - My Point is Proven!
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It’s very weird. I do believe it was a negotiation tactic. That’s now proven. He showed that those who respect America by wanting to negotiate and don’t retaliate, will be rewarded. While those that don’t, will not. A very weird and unfair way of negotiating this point, but very interesting.