Photo-Illustration: Intelligencer; Photo: Getty Images
On April 2nd, which he dubbed “Liberation Day,” President Trump announced that he would impose punishing, so-called reciprocal tariffs on about 90 countries. Soon after, I spoke with Wedbush Capital analyst Dan Ives, who warned that the U.S. could be headed for economic disaster. Ives was far from alone in his alarm, and as markets swooned, Trump announced that he would delay the tariffs for 90 days. Since then, he has also extended a deadline for the European Union to negotiate before strict tariffs go into effect. Trump’s tendency to back off of his most extreme threats recently inspired a Financial Times writer to coin the phrase “Taco trade,” for “Trump Always Chickens Out.” But regardless of his reversals, Trump has imposed higher trade barriers than any president in decades, including a 10 percent universal tariff on most imports, sky-high duties on goods from China, and large sector-specific tariffs (cars, steel and aluminium). Over the weekend, Commerce Secretary Howard Lutnick said that, despite a major recent setback in court, “tariffs are not going away.”
I spoke with Ives again to understand why markets have been relatively calm in the face of all this uncertainty, and the effect of those tariffs on markets and the broader economy.
The last time we spoke, you were issuing dire warnings. Trump averted disaster — at least for now — when he backtracked in April. But how much of a drag do you think the tariffs that remain in place are on the broader economy?
The Trump administration looked at the cards they had in this game of poker and recognized they essentially had to significantly backtrack from the April 2nd tariffs. And we believe many of the tariffs are going to be scaled down and/or significantly negotiated from where they are today because the economic impact on tariffs is real, and it’s ultimately the U.S. consumer that pays for it. Our thing right now is that no one knows the rules of the game. Every day it changes, and it’s become a Twilight Zone type of environment that investors are starting to get used to.
But I’ve been struck though by the fact that, despite everything you just said, the Dow Jones Industrial Average — which I know is a crude measure of economic sentiment, but still — is basically where it was before Trump took office. If you showed someone that and then told them what had happened in the intervening months, I think they’d be surprised. So much uncertainty, so much tumult, and yet we’re back where we started. So why do you think things are relatively calm?
Because the market reads through the tariffs as essentially tissue paper that’s not going to be anywhere near the initial fears. The market is telling you that they’re a small fraction of what was first threatened on April 2nd. You can’t bully the markets. You can’t bully the bond market. You can’t bully the US dollar. And that is why the Trump administration has had to talk a big game, but they’ve had to massively scale it down to where we are today.
And you expect it to go even further down, is what you’re saying.
Exactly. I think this is a downhill slope where tariffs probably end up at some baseline 10 percent, with reciprocal tariffs that maybe in some cases could be an incremental five, ten percent more than that. And I think that is where the market originally, heading into “Liberation Day,” thought we would be. Instead, the chart that will be studied for decades was unveiled, and we went through a white-knuckle period for two, three weeks. But really, Scott Bessent was the adult in the room, and once he took control, everything changed.
And the view is that those 10 percent rates, which are already in place, are something that can be dealt with.
They’re digestible, yeah.
It seems investors temporarily thought Trump wouldn’t back down at all, and there was a sense of “Oh my God, we’ve totally misjudged him and this is real.” But the feeling these days is different — embodied by the now-famous “Taco trade,” right?
There are aspects of it that Trump could clearly go more aggressively on when it comes to China and some of the other subsets. But look, the concept of Apple making an iPhone in the U.S. is a fairy tale. Trump could threaten that all day long, but Apple knows the reality. And when it comes to China, we could threaten China, but we need China as part of our economy. So that is part of this quagmire that the Trump administration has got themselves into. And the problem is that this becomes a boy who cried wolf situation. And the knee-jerk reactions are much more subdued because of what we’ve gotten used to, in the last two months.
One other thing about tariffs is that they tend to boost inflation. The inflation data that came in on Friday was pretty good, but some experts believe any tariff-related inflation to show up later. What do you think?
Yeah, I think we haven’t seen true price increases from the tariffs, and that probably doesn’t happen until the summer months. So looking at inflation data up through today doesn’t capture the right picture. And I think the Fed is laser-focused on waiting and seeing what comes through in the summer. If not for the tariffs, we likely would have had rate cuts, or they’d be on the horizon. Tariffs are what really put a wrinkle in the Fed’s plan.
I think tariffs are scary. They’re a scary concept because of the unintended consequences, and the worst thing that could happen to businesses in the market is uncertainty. And that’s really what’s been created. And that’s why you need to see trade deals come through, and of the “90 trade deals in 90 days,” there have been essentially zero. I think everyone needs to know the rules of the game. Trump created a self-inflicted category five tariff storm that now they need to de-escalate themselves, and day by day, that’s what they’re doing.
But how are they doing that if there’s no trade deals being made?
Essentially, they’re trying to walk back policies. They’re looking to continue to delay tariffs. And then being hawkish on China in the morning, but then having a more subdued tone when Trump holds a press conference four hours later. Friday was a perfect example. First, hawkish comments on China — ”they violated the agreement.” Four hours later, Trump basically said he and Xi will probably work it out.
You always hear that uncertainty is the worst thing for both businesses and consumers, and that’s what this is. And yet…
It is, but it’s a game of poker. And businesses as well as investors are basically saying, “We’ll call your bluff. Let’s see what you got.” Look, if we go through July and August and they try to enact tariffs, and the 90-day pause gets taken off, and they take a much more hawkish view with China, then all bets are off.
Consumer confidence went up by quite a lot last month after being in the toilet in April. On the other hand, spending data was pretty weak. Do you see any signs of the economy actually in distress beyond the issues we’ve already discussed? Or is the weak consumer spending just a function of the tariffs and the uncertainty associated with them?
I think weak consumer spending is a function of those. I’d say that on April 2nd, chances of a recession went to 60 to 70 percent. By scaling everything down and taking steps off the cliff and Bessent being the adult in the room, chances of a recession went to 30 to 35 percent. It’s not a roses and rainbows, drinking champagne-type economy, but it’s not the dark Armageddon that seemed like it was potentially going down on April 2nd.
This interview has been edited for length and clarity.
