The whipsaw behavior in the market this week highlighted just how much the concerns over the perceived escalation of trade wars is dominating all economic news. With the sugar high of tax cuts long gone, markets are left to knee jerk reactions to signs the China trade war is either coming to a truce or about to get worse.
President Trump’s unconventional negotiating style has taken every US investor hostage along with China. Recall that the markets once shrugged off the very same comments just last year, but are now hypersensitive to Trump’s stance on trade wars with a relief rally on Monday based on positive comments from the G-20, followed by a market rout on Tuesday after conflicting “Tariff Man” comments.
One key concern investors are now realizing is that Trump’s base is not particularly sensitive to these market swings and that makes him less sensitive to the negative impact on the markets so don’t think he will come to his senses anytime soon. Trump actually seems to enjoy creating this kind of stress because it gives him negotiating leverage in his view. Unfortunately, the unintended consequences of such a complex negotiation are creating a negative feedback loop in real-time. Given the administration’s practice of claiming all unfavorable news to be fake, will they come to their sense before causing a market crash?