After a Tumultuous Week, My Outlook on Tariffs, the Economy and Trump

April 6, 2025

By Robert Wiedemer

I’m a Little Surprised by Trump but Much More Surprised by Wall Street’s Reaction to Trump

I admit that, like many in the investment community, I was a bit surprised by the high level of tariffs President Trump announced last week.  However, it wasn’t that unexpected in many ways.  President Trump has often talked about high tariffs in the past and had even announced high 25% tariffs on Mexico and Canada a month ago. 

What certainly surprised me was Wall Street’s reaction to the tariffs.  The Street seems to have decided that there is almost zero chance that Trump will negotiate deals that would result in reduced tariffs.  They have this feeling Trump won’t negotiate despite Trump having already negotiated with Canada and Mexico and despite him having said he was willing to negotiate. 

Furthermore, his Treasury Secretary Scott Bessent said that a negotiation to crack down on fentanyl exports from the EU might be enough to resolve that tariff problem, just as it was for Canada and Mexico. More recently, Elon Musk, who certainly has Trump’s ear, has said he is hoping negotiations with the EU would lead to zero tariffs on both sides. 

Most importantly, the big take away from Trump’s announcement of very high tariffs is that there is now no other way to go forward than to negotiate.  They are way too high to last for even a couple of months.  Tom Lee of Fundstrat, a market trends forecaster, was one of the few on Wall Street who said just that:  The tariffs are so high it is clear Trump will negotiate.  Texas Senator Ted Cruz said basically the same thing that tariffs this high are fine for negotiation but if they last 30 days, 60 days or 90 days, they would certainly throw the economy into a recession.

I Don’t Think Trump Wants to Throw the US into a Big Recession nor Does He Want to Lose Control of Congress in the Next Election

What Tom Lee and Ted Cruz are saying makes a lot of sense.  However, many on Wall Street are saying that Trump wants to throw the economy into a big recession.  I have seen various scenarios for why he would want that, such as wanting lower interest rates to make the national debt more manageable.  This is laughable.  A big recession would cause the deficit and debt to jump far more than any savings from a lower interest rate. 

I really don’t think Trump has any interest in throwing the economy into a deep long-term recession.  Some people say that he doesn’t care because he isn’t running for a third term.  That’s nonsense.  He cares very much about who wins control of Congress in the next election.  He might not be up for re-election but his power as a President is up for election next year.  If he loses the House, which could easily happen with his 5-seat majority, his presidential power will be drastically reduced. 

I don’t think he wants his presidential power to be drastically reduced, and he just proved it recently by pulling his nominee, Congresswoman Elise Stefanik, for United Nations ambassador because he was afraid the election to replace her might go to the Democrats.  I’m not a political pundit but that seems highly unlikely in a district Ms. Stefanik won by 24% just 5 months ago.  Hence, that move shows real fear about losing control of Congress.  And that is coming from a man who is loath to show fear.

Counter-Tariffs, Like Those China Just Announced, Can Cause an Immediate Halt to Exports Quickly Damaging Farmers and Manufacturers Who Support Trump and Republicans in Congress

Also, Wall Street is forgetting that Trump is not the only person in government with power.  Congress has power too and if Republicans in Congress fear Trump will destroy their power, they will not support it.  Already, the Senate has passed a bill to undo all tariffs Trump has put on Canada.  Senator Charles Grassley, senior Republican Senator from Iowa, has introduced a bill to require the President to secure Congressional approval for any tariff within 60 days or the tariff will be removed.  Guess he doesn’t want to see his farmer and manufacturing constituents suffer through a trade war. 

Maybe he remembers better than others how fast a trade war can hurt farmers and manufacturers.  It’s very simple, if China slaps a 34% tariff on US farm exports, Chinese buyers will immediately buy their soybeans from Brazil or another exporter.  Chinese buyers of John Deere or Caterpillar equipment can also easily buy Komatsu equipment from Japan. 

More practically, if buyers really want Caterpillar or John Deere equipment, they can just postpone their purchases for a month or two and wait for the tariffs to be negotiated away.  In fact, they can easily delay shipment of farm goods or equipment so that even if they have already ordered something they don’t take delivery, waiting a month or two for tariffs to drop.

Of course, either delay or cancellation of an order has an immediate impact on a farmer’s and manufacturer’s revenue streams.  In response, manufacturers will have to do layoffs.  Remember 52% of Caterpillar’s sales are exports.  The managers who run Caterpillar won’t like these tariffs and may want to layoff a bunch of people to send a strong message to Congress and Trump that they don’t like these tariffs at all.  Add to that some serious protests from farmers and you will have Congress hopping mad at tariffs. 

And it’s not just the Midwest.  Texas is a massive exporter of petrochemicals and LNG as well as manufactured equipment.  Houston is the largest port in the US by tonnage.  Trump may not worry too much if Democrats protest, but when key members of his coalition from the Midwest to Texas stop praising him and start attacking him, he won’t like that. 

I think it’s very safe to say that Trump is a person who loves praise and hates criticism from his supporters. That may be personal, but it affects his decisions.

All of this makes it even more laughable that some people, especially Democrats, think that Trump would happily put us into two years of recession. That’s crazy.  Plus, they seem to think that Republicans would happily lose seats and give up control of Congress so we can have a multi-year recession. 

Neither the President nor Congress will like upsetting so many of their supporters and therefore losing so much of their power.  And the problems will hit quickly.  Again, as soon as tariffs are charged on our equipment and farm exports by China and other countries, our shipments of those goods will stop almost immediately.  It’s not a long-term process.

Why Doesn’t Wall Street See That Trump Is Likely to Negotiate on Tariffs Instead Creating a Long-Term Trade War?

So, why doesn’t Wall Street see any of this?  They are normally willing to look more positively on the likelihood of a negotiated settlement to tariffs, especially with a Republican President who clearly likes Corporate America and its Billionaires. 

I think part of it may be what I have talked about before.  There is a group of people on Wall Street who want a recession to bring down interest rates to help save the two investment groups that are under enormous pressure from high long-term interest rates:   Bonds and commercial real estate.  And, admittedly, rates are going down because of this turmoil. 

Many of these people thought a recession from tripling long term interest rates in 2022 would force the Fed to lower rates.  But, due to the stimulus from massive government borrowing, we didn’t get a recession.  Their thought process now is that maybe a massive tariff induced recession will force interest rates down.  As I mentioned earlier, they even think lowering interest rates is the reason Trump is doing all this. 

If Trump Wants Lower Interest Rates, He Can Just Replace Fed Chairman Powell in May 2026 with Someone Who Supports Lowering Rates (and make that announcement long before May 2026)

In fact, if Trump wants to lower rates, he can just replace Fed Chairman Powell in May 2026 with someone who wants to lower rates.  Easy Peasy.  No recession required.  If Trump wants to speed up the timetable of lowering rates, he could simply announce his choice of a candidate known to support lower interest rates earlier.  That will likely cause the bond market to lower rates even before the new Chairman takes office in May 2026. 

I know I haven’t addressed tariffs in as much detail as I just did.  That’s largely because I don’t see them affecting the long-term macro-outlook.  For me, that’s what matters.  We make money by investing in the right macro instruments to take advantage of the right macro forecast. 

I’m not interested in being a momentum trader who tries to buy into a rising market and then sell into a falling market.  I know people who do it, but I know of few who can do it and successfully make very high long term returns.  In fact, like most money managers, they struggle to even match the performance of S&P 500. 

How Do Tariffs Play into my Macro Outlook?  And the Correct Macro Outlook Is What Matters for a Long-Term Macro Investor

So, I’m a macro money manager using macro financial tools to make high long-term gains.  Hence, it is very important to review my current long-term macro-outlook.  Again, for high performing macro investing, the correct macro-outlook is what counts.

Tariffs: Going forward, I see the tariff situation resolving itself within a few months, if not earlier.  I don’t know how President Trump will resolve it, nor does President Trump right now, but whatever is negotiated he will announce it’s a big win.  Trump’s supporters won’t criticize the deals and will simply agree they’re a big win.  Wall Street couldn’t care less whether it’s a big win or not.  They’ll just be happy it’s over and move on.

Tax Cuts: What  will they move on to?  I would expect it to be big tax cuts.  And Congress is already making progress on that.  In particular, Friday, in a late-night session, the Seante passed its budget bill.  That now goes to the House for negotiations. 

That’s good progress compared to Trump’s first term when Congress took over a year getting a tax cut bill finished.  More importantly, the Senate bill contained a provision for $1.5 trillion in tax cuts on top of making permanent the $3.8 trillion in tax cuts previously passed under Trump.  That $1.5 trillion would go for cuts to taxes on Social Security, overtime, tips and corporations that Trump strongly supports.  He thinks the bill is terrific. 

And most of the House Republicans will think the bill is terrific (or at least they will vote for it).  However, some House Republicans don’t think the bill is terrific and will vote against it.  I don’t know how many Republicans will vote against it, but they can only afford to lose a few votes, unless they can get some Democrats to switch sides and vote for it.  That’s a real possibility if the bill contains tax cuts for tips, Social Security and overtime, which many Democrats will like. Also, Trump will put enormous pressure on any Republican House member who does not support the tax cut bill.

As with anything in Congress, movement can be slow.  However, with Trump fully behind the Seante bill that just passed, it is quite possible it will come to a final resolution this summer. 

After the tariff drama is negotiated away, a tax cut bill will be a big boost to Wall Street.  Also, what is becoming a growing source of frustration among Republicans and many others in the country, Elon Musk, will likely leave government in May.  That will reduce some of the chaos currently surrounding the government and will help ease concerns on Wall Street that there are people in the administration who are loose cannons. 

Musk is another good example of Trump being politically sensitive – Musk was popular early, but lost popularity over time with his budget cuts that were not scalpel cuts, but chain saw cuts that ignored all Cabinet members and Congressional leaders and looked somewhat out of control.  As he has lost popularity, Trump has made it clear that Musk will be leaving soon.

Change in Fed Chairman:  Next up on the macro-outlook will be the changing Fed Chairman.  Although that doesn’t happen until May 2026, I could easily see discussions of who will be the new chairman starting in the fall.  If, as I suspect, Trump announces he will appoint a chairman who supports lower rates, that will further cheer up the stock market. 

Consumer Confidence:  As for consumer confidence, I don’t see a big rebound.  It may rebound somewhat after the tariff drama and a tax cut bill passed, but don’t look for super happy consumers.  However, they will continue to consume and, very importantly, the rich consumers who do a lot of the consumption will feel more optimistic after the stock market recovers. 

Substantial Growth in Government Economic Stimulus: Plus, I see the deficit growing substantially this year from $2 trillion to at least $2.5 trillion.  That’s a huge stimulus to the economy which will especially boost the medical industry.  That is because a fair share of the rise in the deficit is due to rising medical costs for the government from Medicare, Medicaid, the Veterans Administration and the military and other government employees. 

We may see some cuts to Medicaid but that was not a key focus of the Senate bill, and we may not see a big cut because of bi-partisan support.  It’s easier to just increase the deficit. 

So, expect continued solid growth in the medical care industry, which has been an important part of our growth and is not subject to consumer confidence.  Much of consumer spending is medically related and that’s one reason poor consumer confidence doesn’t necessarily translate into much lower consumption. Even if consumers lack confidence, they still go to the hospital, especially if the government is paying for much of it.

Summary of Macro Outlook: So, the macro view for the next year is that we get past the trade drama in the next few months and move on to more positive issues affecting the market and the economy, with the highlight being tax cuts.  Thus, we should see a good year ahead after the trade drama is over which should flow into next year on the rising tide of tax cuts, massive increases in government borrowing stimulus, no more trade drama and the prospect of a friendlier Fed in regard to long term interest rates.

PS As I put the finishing touches on this email, Vietnam and Taiwan just announced they have negotiated a deal with President Trump to reduce tariffs to zero on both sides.  The next round of tariff negotiations appears to have already started. Plus, every other nation affected by tariffs has called to negotiate, according to President Trump.

As to what will happen Monday, I will simply have to wait and see.  I don’t know if the market will react positively to the Vietnam/Taiwan news, but it should.  As I said in my Friday e-mail, I may reduce our stock exposure further if needed, but I prefer not to make too many of these momentum trades as they rarely make money.  The futures market tonight is quite negative but moving up rapidly.   Don’t know if that will last until tomorrow morning as futures are lightly traded compared to the market.  Plus, they can change direction as soon as the full market opens.