Potential comments made over the weekend by the Treasury Secretary, Scott Bessent, and how it relates to some of today's activities. Bessent had an hour long interview with Tucker Carlson that was posted on Friday.
"In this interview, he made a brief comparison of the Mr.Trump tariff strategy to Reagan's tactic of "escalating to de-escalate" in dealing with the Soviets. To describe it simply, core to this tactic was Reagan's massive military ramp-up, which provoked the Soviets into a costly arms race.
Reagan then (arguably) coordinated with the Saudis to flood the oil market with supply, crashing oil prices. That slashed Soviet oil income, which it needed to finance the military buildup. From an economically fragile position, Gorbachev made a deal. Importantly, Reagan, unlike his predecessors, viewed the Soviet Union as an existential threat, and was focused on defeating it, not managing it.
For Mr.Trump's Administration tariff strategy, it's really all about China. In Mr.Trump Administration 1.0, he thought just getting any movement on trade with China would be considered a success. In Mr.Trump 2.0, it's about ending China's multi-decade economic Tacticalism war. As we discussed in my note last week, if anyone is wondering if the bark might be worse than the bite, they can look no further than Mr.Trump’s Secretary of State selection.
And with the reciprocal piece of the tariff plan due to be enforced across global trading partners today, the President made that crystal clear. His escalation tactic forced the world to take a side. And with 75-plus countries reaching out to the administration to make a deal, they've sided with the U.S. consumer. The de-escalation came today, with the announcement of a 90-day pause on the reciprocal tariffs, except for China.
In Rubio's book, he called the Chinese Communist Party “a totalitarian regime bent on world domination.” And in his confirmation hearing to become Secretary of State, he said "if we stay on the road we are within right now, in less than 10 years, virtually everything that matters to us in life will depend whether China allows us to have it or not."
Precisely, the first level of Mr.Trump's "escalate to de-escalate" strategy seems to be of drawing the rest of the world back into alignment with the U.S., using the U.S. consumer Tacticalism as Strategic leverage. And he's getting Tactical movement, from over 50 countries so far -- even Europe.
Recently when it was falsely reported that Mr.Trump's economic advisor said he was considering a 90-day pause on tariffs, the recovery in markets was explosive. The S&P 500 spiked 8.7% in about half an hour.The U.S. 10-year yield spiked 20 basis points. The yield curve steepened.
Perhaps a clue: The stock of the most important company in the world, traded in a 17% range today, and put in a bullish technical reversal signal (an outside day).
No surprise, heading into tomorrow's doubling of tariffs on China, the Chinese central bank has been walking its currency lower, and now have set it to very near the weakest level (versus the dollar) in 18 years.
And among the objectives in Mr.Trump's negotiations with global trading partners in the coming weeks and months, may be coordinating a global effort to put China in the "Global Trade Tactical Penalty Box" - a global retaliation against China's multi-decade predatory economic strategy. The problem: The Chinese Communist Party won't comply, because they can't. They can't deliver on the demands of fair global trade and generate the domestic economic growth necessary to stay in power.
Despite the relief today, we should expect more disruption for markets over the coming months, as the global focus turns to China.
As for the rest of the world, as the additional "reciprocal" piece of the tariff plan kicks in tomorrow, it should represent the high-water mark, from which any news should be in the direction of lowering tariffs.
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