Trump is ignoring markets at his own peril. Just ask former British PM Liz Truss
March 17, 2025
Donald Trump has repeatedly ignored warnings from businesses and economists against imposing tariffs on imports into the United States. His tsunami of levies has bludgeoned the stock market and wiped billions of dollars off Americans’ retirement accounts.
Before the 47th US president, there was another blond(e) with a distaste for economic orthodoxy setting fire to financial markets. The Parable of Liz Truss should be required reading for Trump.
A little over two years ago, the then-British prime minister attempted to push through massive unfunded tax cuts, decimating UK government bonds before she was forced into a humiliating climbdown. The episode ultimately cost Truss her job, earning her the title of Britain’s shortest-serving premier and the rare distinction of having spent fewer days in office than it took a
lettuce to decompose
.
Trump’s job looks secure as US and UK government systems are different. The president and his policymakers have also surprised investors with the level of market pain they are prepared to withstand to implement their radical economic agenda. But their tolerance is not infinite, analysts tell CNN.
Ross Mayfield, an investment strategist at Baird, a financial services firm, believes “there’s way too much private wealth tied up in the equity market for there not to be a point” beyond which Trump feels forced to change course on tariffs.
“Financial markets are ultimately king,” he said.
Trump says he believes tariffs are a silver bullet for America’s economy: a means to boost domestic manufacturing, raise money to eliminate the US budget deficit and cut income taxes, and extract concessions from other countries on trade and other issues.
But businesses and economists argue that, instead, import duties raise prices for American producers that use imported inputs and for consumers, while retaliatory tariffs imposed by other countries lower demand for American products abroad.
Trump has admitted his tariff plan will cause “a little disturbance” and has declined to rule out the possibility of a recession. Last week, Goldman Sachs said there was now a 20% chance of such a downturn in the US over the next 12 months, up from 15% previously. Economists at JPMorgan have also upped the probability of a US recession this year to 40% from 30%, saying in a note last week that “less business-friendly” government policies were partly to blame.
Investors, too, have turned gloomier.
As of market close on March 14, the S&P 500 index has fallen 8.2% since its record high on February 19. The tech-heavy Nasdaq Composite has cratered 12% since hitting its all-time peak in December.
Target (
TGT
) recently predicted that Americans
will pull back on spending
due to a lack of clarity on tariffs, and Kohl’s (
KSS
) said economic uncertainty was taking a toll on consumers. Delta Air Lines (
DAL
) went even further, cutting its
earnings forecast
Monday due to a fall in confidence among consumers and companies “caused by increased macro uncertainty.”
Uncertainty “is a buzzkill for the business community and, in turn, it’s a buzzkill for investors,” said Kevin Gordon, a senior investment strategist at Schwab. “We’re hearing verbatim from businesses (that they’re) just not able to make spending plans.”
So far, Trump seems unmoved by the market reaction. “Markets are going to go up and they’re going to go down but, you know what, we have to rebuild our country,” he told reporters last Tuesday.
Likewise, Treasury Secretary Scott Bessent said Sunday that he was “not at all” worried about falls in the stock market. “I’ve been in the investment business for 35 years, and I can tell you that (market) corrections are healthy,” he told NBC News. “They’re normal. What’s not healthy is straight up.”
Trump did not demonstrate the same nonchalance during his first term, said Paul Donovan, chief economist at UBS Global Wealth Management. That
shift in attitude
has, itself, unsettled investors.
“Markets had expected that the negative reaction of (equity investors) would lead to some reappraisal of (his) policy position,” Donovan said.
The Truss turnaround
Trump has a twin flame in Truss.
In September 2022, Truss began her 49-day stint as Britain’s prime minister with a similarly audacious economic plan: slash taxes by the tens of billions and pay for them by borrowing more, rather than cutting spending.
When she unveiled this so-called “mini-budget,” bond investors ran for the exits, worried about the sustainability of the British government’s finances. The selloff in UK bonds, or gilts, drove up the cost of mortgages. Some pension funds that had invested in gilts were pushed to the brink of insolvency, prompting the Bank of England to step in. The market mayhem ultimately forced Truss to scrap her calamitous project.
Like Truss, Trump may eventually have to back down — as he
has already done
with some of his measures. For example, he has backed off from or delayed some of the most severe threatened tariffs, including a 60% tariff on all imports from China (it’s much lower currently) and 25% blanket duties on Canada and Mexico. And last month, he temporarily
reinstated
the so-called de minimis provision, which allows packages worth less than $800 to enter the US duty-free.
Donovan at UBS offers an explanation: “DHL turn up (at your doorstep) and say, ‘here’s you product, but before we hand it to you, you need to pay $30 to the US government.’”
“Where the trade taxes are likely to be very visible to voters, President Trump has retreated very, very quickly,” he noted.
By contrast, the impact of, say,
the 25% tariff
on aluminum imports, which came into force this week, is less material for the end-consumer. Donovan estimated that the extra tax could lift the price of a six-pack of beer by 1.5 cents, or perhaps not at all if the cost is absorbed along the supply chain.
Markets ‘the ultimate arbiter’
Ignoring the market reaction to policy announcements is a risky bet, not least because that reaction has a bearing on the wider economy.
Jack Ablin, founding partner of Cresset Capital, a Chicago-based wealth management firm, believes the stock market will be “the ultimate arbiter” of Trump’s economic policies because it influences
all-important consumer spending
.
Americans tracking the slide in the value of their stock portfolios and retirement pots will feel less wealthy, Ablin said, and rein in spending on non-essentials like vacations and restaurant meals. And Trump could only ignore the negative domino effect on the whole economy for so long.
Mayfield at Baird agrees, noting that Trump has many tools at his disposal to calm investors.
“President Trump can downshift the trade and tariff rhetoric and focus on things that the market would really enjoy, like tax cuts, deregulation,” he said. Trump’s tolerance for “pain,” he noted — the level of market turmoil he is prepared to put up with before changing tack — is greater than investors had anticipated. But it is not limitless, he said.
Echoing Ablin, he added: “I’m a believer that the market is the ultimate arbiter of this sort of thing.”
Just ask Truss.
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