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Speaker of the House of Representatives, Mike Johnson, has stated that faith should be placed in Donald Trump’s instincts. Alternatively, Johnson and his colleagues might consider distancing themselves significantly from Trump. The Republican Party’s transformation into a party heavily centered around belief in Trump is irreversible. However, they could still play the role of allies by persuading Trump to moderate his actions, as the stakes include not only their jobs but also the global economy and the retirement funds of every American.
Their challenge is heightened by Trump’s own belief in his success. Reflecting on his history, from promoting the 2011 Obama foreign birth conspiracy to facing conviction in 2024, Trump has repeatedly managed to defy expectations of defeat, maintaining the belief that he is an unbeatable winner. Consequently, market instability is unlikely to deter him.
Trump’s worldview casts him as a hammer, with the rest of the world and half of America as nails. While sometimes the hammer can be selective or less forceful, it remains a hammer. It is surprising that close associates of Trump, such as New York hedge fund manager Bill Ackman, express astonishment at Trump’s global trade conflicts, given that Trump consistently campaigned on initiating such a trade war. Since the mid-1980s, Trump has accused foreign entities of exploiting America, originally targeting Japan rather than the Soviet Union. His ire has often been directed at allies such as Europe and Canada.
It remains perplexing why many, including billionaires and certain demographics in Florida, fail to recognize Trump’s true nature. Numerous discussions have wrongly assigned Trump derangement syndrome (TDS) to his critics, whereas the real affliction lies with those viewing Trump as a rational actor. This misjudgment has even pervaded the market, as evidenced by market reactions to false reports about Trump potentially pausing tariffs. The markets responded with volatility, first soaring upon rumors of tariff suspension and then falling again when the White House denied such claims.
If mere rumors can shift markets so rapidly, Trump effectively holds significant sway. The prospect of him making rational decisions incites investor interest akin to the influence once wielded by Roman emperors. Eventually, Trump could be compelled to halt at least some of his trade actions, likely sparking temporary market relief, but this pause would be as unstable as floating driftwood. The same logic applies to his threats of intensifying tariffs on China.
Any indication of bilateral agreements Trump intends with key economic players like Japan, China, and India should be monitored by investors. Such deals will often be formed directly with Trump rather than his administration, possibly leading to opportunities for negotiations not strictly related to trade.
Considering Trump’s influence beyond the trade economy is crucial. Foreign ownership of US Treasury debt plays a key role, with continued demand for these assets being the difference between a recession and a depression under Trump. European governments appear to have a better grasp of this compared to equity and fixed-income markets, opting for minimal retaliations instead of trade war escalations, fearing the risk of a financial system breakdown.
This moment of realization is long overdue, as those who have dismissed Trump’s behavior as rational have weakened their credibility. No established foreign policy or trade economics framework adequately explains Trump’s actions. Understanding Trump’s psychology is vital for predicting global outcomes, posing a challenge for those invested in America’s future.
