On the menu today: It might be safe to check on your 401(k) or college savings or other investments again, as the stock markets have climbed back to just a bit lower than where they were when Donald Trump took office. It was just a week ago that the president was arguing that idle port workers and truckers were “a good thing, not a bad thing,” but the markets love it when tariff rates go down, and we’re witnessing a shipping explosion during the current 90-day pauses. But you must wonder what lessons the Chinese government is taking from all this, and just how much the U.S. economy can thrive when our tariff rates are changing so suddenly and unpredictably. Read on.
Trump’s Plan Backfires
The day Donald Trump took office for the second time, the Dow Jones Industrial Average closed at 43,487.83, the tech-heavy Nasdaq Composite closed at 19,630.20, and the S&P 500 closed at 5,996.66.
This morning, DJIA starts at 42,051, the Nasdaq starts at 19,146.81, and the S&P 500 starts 5,892.58.
That’s still down from the start of Trump’s second term; declines of about 3 percent, 2.5 percent, and 2 percent, respectively. But those are way better numbers than during the sharp market downturn in early April. The lowest point for the DJIA so far this year was 36,611.78; the lowest point for the Nasdaq was 14,784.03; and the lowest point for the S&P 500 in 2025 so far was 4,688.41 — declines of about 16 percent, 24 percent, and 22 percent, respectively.
The good news is, the stock markets are clawing their way back to the pre-Trump “normal,” with notable surges after the two separate announcements that new high U.S. tariffs would be paused for 90 days. (Gallup’s latest data finds 62 percent of Americans reported owning stock in some form this year, matching the 2024 reading and similar to the 61 percent recorded in 2023. Remember, this includes owning an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA.)
The “Liberation Day” tariffs were announced April 2, they went into effect April 5 (the 10 percent across-the-board tariff) and April 9 (the rest). On May 12, Trump announced that most of these tariffs, other than the 10 percent across-the-board one, would be suspended for 90 days for additional negotiations.
Separately, the new tariffs on China were expected to stay in place longer — 145 percent levies on Chinese goods entering the U.S., and 125 percent levies on U.S. goods entering China. The good news is that the latest negotiations have lowered those too; Chinese goods entering the U.S. now face a 30 percent tariff, and U.S. goods entering China will face a 10 percent rate.
We have now had six new U.S. tariff rates on Chinese goods in less than 115 days. The law firm Reed Smith added up all of the tariff announcements and found the administration has made 55 separate charges to tariff rates in that time. The Washington Post noted, “More than a half-dozen of the president’s tariff announcements, such as duties on dairy imports and Colombian trade, didn’t last more than a week before they were altered.”
People who are fans of tariffs are going to argue they did their job and point to an economy that is not collapsing as a sign they weren’t as economically harmful as critics claimed. Of course, the Liberation Day tariffs were only in effect for a month, and the tariffs on Chinese goods about six weeks. As Rich observed, “The Soviet Union was governed by Five-Year Plans; now, we are governed by 90-Day Pauses.”
It was only a week ago that President Trump argued that ships carrying foreign goods not arriving in U.S. ports, and dockworkers and truckers sitting around without any shipments to deliver was a good thing and the intended goal of his policy:
QUESTION: Because business has slowed down, as you mentioned, we’re seeing . . .
TRUMP: In China.
QUESTION: But we’re seeing, as a result, the ports here in the U.S., the traffic has really slowed.
TRUMP: That’s good.
QUESTION: And now thousands of dockworkers and truck drivers are worried about their jobs. Is that . . .
TRUMP: We lose — that means we lose less money. When I see that, that means we lose less money. Look, China was making over a trillion, $1.1 trillion, in my opinion, different numbers, from $500 billion to $1 trillion or $1.1 trillion. I think it was $1.1 trillion. And, frankly, if we didn’t do business, we would have been better off, okay? You understand that. So, when you say it slowed down, that’s a good thing, not a bad thing.
But if the reporting in the Washington Post is correct, one big impetus to a deal with the Chinese was the fact that the tariffs were starting to put an economic squeeze on voters who were part of the MAGA base:
By the end of the month, though, a growing number of blue-collar workers whom Trump saw as part of his political base — including longshoremen and truckers — began warning that tariffs and a near-total cessation of trade with China were hurting them. Behind the scenes, White House Chief of Staff Susie Wiles, Treasury Secretary Scott Bessent and other aides told Trump that his own voters were in danger if the tariffs did not come down, according to two people familiar with the matter who spoke on the condition of anonymity to describe private discussions. That gave them a path to initiating negotiations with the Chinese, which culminated this past weekend in Geneva with a partial deal to reduce tariffs between the world’s two biggest economies. One White House official cautioned, however, that multiple factors contributed to the trade talks in Switzerland.
“The key argument was that this was beginning to hurt Trump’s supporters — Trump’s people,” one person briefed on the talks said. “It gave Susie a key window.”
Now, with the pause, every exporter in China is trying to get as many goods as possible to the U.S. within the 90-day window, and shippers are rushing to book space on container vessels headed to the U.S. — one measure of container bookings indicates an increase of 277 percent in just a matter of days. And the Financial Times reports that importers are looking ahead, trying to get their end-of-the-year stuff shipped in this window: “Normally U.S. retailers would import goods for the key Black Friday sales period and Christmas between July and mid-October, but they are now expected to pull orders forward to beat the potential expiry of the trade truce on August 10.”
It’s hard not to wonder, if the net result of the trade war is just a 10 percent across-the-board tariff on everybody and a 30 percent tariff on China . . . was it worth all that drama and the market crashes? And if we tell China we’re going to get tough on them and then back down about a month later . . . is the lesson that Xi Jinping takes away from all this that Trump talks tough but backs down once he feels the pressure?
Even after all the fits and starts, it seems clear that the administration did not intend the outcome that developed prior to the Geneva U-turn. The U.S. had launched a campaign of maximum pressure on China, which is experiencing serious negative effects from the tariffs given the underlying fragility of its economy. After the reversal in Geneva, President Trump and Secretary Bessent were clear that they did not intend to squeeze China that hard. Even so, China wants the world to believe that it can tolerate more pain than the U.S. That’s what we were supposed to believe during Covid, which turned out to be a disaster for the Chinese people.
The truth is that China’s economy is in very serious danger, and serious U.S tariff pressure would quite likely have exposed that. All the inefficiencies, distortions, and collateral damage of tariffs aside, the best approach for the administration would have been to hold out until China relented. Capitulating short of that, out of fear of empty shelves at Walmart and other economic dislocations, creates a crisis of credibility for the U.S. and for Trump himself. Trump’s — thus America’s — credibility already is under assault given lack of consistency and principle. An early U.S. climbdown will embolden China to generate continued geopolitical challenges in the Indo-Pacific, and U.S ability to mediate in the Middle East and Ukraine will be further hampered. If Trump is seen as having insufficient resolve in his core trade issue, it will further weaken his ability to affect geopolitical matters that go beyond trade, in the bilateral relationship with China and in other parts of the world.
We would expect the Chinese to run around boasting they forced Trump to capitulate. But considering how Peter Navarro went on television and declared after the Liberation Day announcement, “This is not a negotiation. This is a national emergency based on a trade deficit that’s gotten out of control because of cheating” . . . didn’t this all turn out to be a negotiation? Is the national emergency over?
On a variety of fronts, the economic numbers are . . . eh, like the Chernobyl technician said, “Not great, not terrible.”
The U.S. gross domestic product decreased at an annual rate of 0.3 percent in the first quarter of 2025. (Note the previous three quarters had shown growth between 2 and 3 percent.) Traditionally, two consecutive quarters of negative GDP growth constitute a recession, although when this happened in the middle of 2022, seemingly every Democrat threw a fit insisting that it didn’t really count. I suspect if U.S. GDP growth is negative in the period covering April, May, and June, seemingly every Republican will throw a fit insisting that doesn’t really count as a recession, either.
The U.S. unemployment rate is still low by historical standards, at 4.2 percent. In perhaps the best news, the most recent inflation number was surprisingly low; “The Consumer Price Index, which tracks a variety of costs throughout the economy, rose 2.3 percent year on year in April, the Bureau of Labor Statistics reported Tuesday, down from 2.4 percent in March.”
But investors hate economic uncertainty, and I don’t think consumers are such big fans of it, either. And as our Brittany Bernstein reports, “Walmart said Thursday it plans to raise prices on some goods beginning later this month, in response to President Trump’s tariffs.” The next set of inflation numbers might not be so surprisingly low.
ADDENDUM: I think the move to lift sanctions on Syria is the right one, so attaboy, Mr. President. But if you genuinely think that Syrian President Ahmed al-Sharaa is an “attractive guy” . . . eh, maybe keep that to yourself next time.