Trump Backs Down
After a wild week, yesterday President Trump stepped away from the brink. He paused the toughest tariffs for 90 days on all countries except China. His administration says it was all the art of the deal. It is far likelier that the chaos in the bond market forced his hand.
Stocks soared on the news, in one of the strongest market rebounds since World War II. Still, global markets are lower than before the tariff announcements, and down considerably from when trade war with Canada talk began back in February. And it is impossible to gauge just how severely other nations’ trust in America as the cornerstone of the global economy has been shaken this past week—but it is considerable.
It feels very Trump-like to have come in hard with tough tariffs and extracted promises of concessions and renegotiated trade deals from nations the world over. His admirers hailed his brinksmanship as genius. (His deputy chief of staff wrote, “You have been watching the greatest economic master strategy from an American president in history.”)
However, Trump repeatedly said this was permanent, not a short-term stunt. It appears he buckled at signs the tariffs were triggering a global crash.
“The bond market is very tricky,” he told reporters yesterday. “I was watching it …. I saw last night where people were getting a little queasy.” Traders were “getting a little bit yippy, a little bit afraid,” he said. “You have to have flexibility.”
If this is in fact what happened, the ramifications are big.
When equity markets started crashing, investors needed to raise cash by offloading bonds, throwing the world’s single most important financial market into dysfunction. If people lose confidence in U.S. treasuries, and they stop buying America’s debt, this deeply overleveraged country cannot operate.
As the Telegraph put it, “In short: the bond market held itself hostage and said it would shoot unless the president changed his mind. So he hit pause.” This means even a policy important for long-term economic health must take a backseat if the markets don’t like it.
This is essentially what happened in the UK 2½ years ago under Liz Truss. Her effort to implement a conservative economic policy hit the brick wall of rebellion among bond holders, instantly tanked confidence in her leadership, and forced her to step down after just 50 days as prime minister. Britain’s indebtedness makes such efforts impossible. The Telegraph wrote:
Why do you think the Labour government does nothing beyond trying to balance its books? Terror of the markets; of quangos, of banks, of lifting a finger lest a sudden tremor in the local atmosphere cause the entire pack of cards to fall.
This phenomenon was spotted by Tony Benn in the 1960s, when he found that whatever policy he wanted to follow, as an elected representative, he first had to run it past unelected money men.
Trump faces a similar reality. It may not matter what he wants to do, or if it is a good idea: If the people who lend us money don’t like it, they’re the boss.
In the end, the borrower is servant to the lender (Proverbs 22:7). Mountainous debt means our nations are enslaved to the financial markets.
President Trump does appear to be holding the line on China, however, bumping tariffs up to 125 percent in response to their retaliation. And it’s not the only area where America and China are on a collision course:
The Panama plot thickens: America and Panama announced a security partnership aimed at countering China’s influence over the nation’s strategic canal. China had pushed back at America’s efforts to reclaim the canal, but America looks to push back harder. Read our In Brief on the subject.
China’s aggression continues in South China Sea: A Chinese Coast Guard ship nearly collided with a Philippine Coast Guard vessel in Philippine waters on Saturday, Ezekiel Malone reports.
Zelenskyy: Chinese soldiers are fighting for Russia: Over 150 Chinese nationals have been identified fighting alongside Russian forces in Ukraine, Ukraine’s President Volodymyr Zelenskyy says. Two of them were captured in Donetsk. Russia allegedly recruits them through social media, offers migration documents, payment and citizenship, then trains and deploys them.
China denies any state-sponsored role in these cases. That may be true. But its support for Russia’s war has been substantial economically and materially. Since Russia invaded Ukraine three years ago, China has offered a vital economic lifeline to Russia through significantly increased trade, and has supplied dual-use technologies like semiconductors, optical equipment and software that Russia has used in its war effort. We continue to watch the developing relationship between these two giants of the East.
U.S. might remove its soldiers from Eastern Europe, according to anonymous U.S. and European officials. This is certain to stoke already heightened fears that America is abandoning its role in protecting Europe from Russia, and add urgency to Europe’s drive to militarize, our In Brief reports.
Germany commits to drone warfare: Our feature story this morning, from Josué Michels, shows how Germany has decided to invest in combat drones, seeing their use in Ukraine as a game changer in modern warfare.
France to recognize a Palestinian state? French President Emmanuel Macron announced that France might recognize a Palestinian state, potentially as early as June, in a TV interview. He said this move to advance a two-state solution might occur at a UN conference. Macron framed it as a strategic step intended to encourage countries that support Palestine to also recognize Israel, enhancing regional security. Nice try. Watch out, Israel. Europe is a counterfeit peacemaker.
Iran—talking peace, preparing for war: While America and Iran prepare for indirect peace talks in Oman on Saturday, Iran has made a pushy move: giving its proxy Shiite militias in Iraq surface-to-surface missiles that can reach Europe, the London Times reports.
“Iran has recently transferred missiles to Shia militias in Iraq, including new models with longer range, which have not been given in the past to those militias,” the Times’ “regional intelligence source” said. “It’s a desperate move by the Iranians, risking the stability of Iraq.”
Days ago, sources told Reuters that the militias were ready to disarm if it meant placating the United States. But one source told the Times, “The efforts seen in the last 48 hours to create a picture that the militias are disarming is a ruse.”
This exposes Iran’s signals that it wants peace as mere posturing. Bible prophecy says we expect Iran to keep pushing and provoking its neighbors to war until it finally gets a response. Our booklet The King of the South explains.
Not so fast: Israel’s Supreme Court vetoed Israeli Prime Minister Benjamin Netanyahu firing Shin Bet director Ronen Bar. Israeli law clearly states the government can appoint and fire its intelligence chief. But because Bar is currently investigating two of Netanyahu’s aides on bribery charges, the court says this potential conflict of interest warrants a pause on the firing. It gave the government until April 20 to find a compromise over Bar’s future.
Israel’s Supreme Court is in many ways at the heart of an internal war between Netanyahu’s government and Israel’s liberal establishment. Read our 2020 article “Israel’s Rogue Supreme Court” to learn more.
