January 20, 2025 at 01:58PM
I’ve been writing about this since the election and it’s worth repeating now.
Trump’s economic campaign was on three things:
Boosting the stock market
Narrowing trade deficits via tariffs
Narrowing fiscal deficits
Those three goals are incompatible.
I have emphasized that the way to trade Trump is to believe that the stock market (and GDP growth) will be the real priority, at the expense of the other two. There will be incredible noise around those other priorities but he’s not going to spark some kind of trade war that hurts stock markets badly, nor will he cut the deficit in a way that weakens growth.
I have high conviction on that, or at least as high as you can have with anything to do with Trump.
Today’s report saying he will only issue a ‘memo to investigate’ US trade deficits is a big sign that line of thinking is right. There have been some big moves in FX markets on the headlines and that’s the right move. Now there is going to be some kind of denial and the sound-and-fury will return because the threat of tariffs is far less-costly than actually employing them.
But actions speak far louder than words and if Trump really wanted to impose tariffs and negotiate later, today was the day to do it.
The market is figuring that out and it’s good for global growth that the global trading order will be preserved, for now. He doesn’t even appear to be going after China, let alone Canada, Mexico and Europe.
The euro is up 121 pips now as part of a broad USD move.
This article was written by Adam Button at www.forexlive.com.
