Donald Trump’s most unconventional policy proposal is also one he’s been most consistent in promoting: universal tariffs.
The former president’s plan to implement taxes of up to 20% on goods American consumers and businesses could raise trillions in new revenue, and critics and supporters alike say it would remake the U.S. economy.
But a core of Trump supporters on Wall Street don’t believe Trump will actually implement tariffs on a large scale, and this skepticism is reflected in the relative calm in financial markets, experts say.
Trump supporter Howard Lutnick, CEO of Cantor Fitzgerald told CNBC earlier this month that the tariffs would simply be a “bargaining tool” to force other countries to lower trade barriers, and would ultimately not need to be put in place.
“When you’re running for office, you make broad statements so people understand you,” he said. “Tariffs are an amazing tool for the president to use.”
Mizuho Securities chief economist Steven Ricchiuto said the market sees them more as a “bargaining chip” as well, despite a recent rise in long-dated Treasury yields, which some of have been attributing to the fear of new tariffs.
He wrote in a Wednesday client note that many market observers were falsely attributing rises in the 10-year BX:TMUBMUSD10Y and 30-year Treasury BX:TMUBMUSD30Y
yields to anticipation of tariffs generating inflation that would force the Federal Reserve to keep interest rates higher for longer.
Ricchuito said however that after assuming office in 2017, there was a long lag before Trump began implementing tariffs and even then they were largely “used as a bargaining chip to obtain concessions from countries seen as unfairly exploiting the U.S.’s free trade position.”
These relatively sanguine attitudes maybe an example of Wall Street misunderstanding Washington.
“I would encourage anyone in the import business to take the threats of tariffs very seriously, both on the China and EU, for starters,” said Henrietta Treyz, economic-policy analyst at Veda Partners and a former Senate Budget Committee staffer.
She told MarketWatch that while the first Trump administration did negotiate using tariffs, they also implemented them on hundreds of billions worth of tariffs during those negotiations.
“If the Trump administration indicates they want to have trade negotiations that may be true, but that does not mean tariffs won’t be in place for the duration and all signs point to tariff escalation throughout any negotiation process, which history has proven, takes years,” she added.
Longtime Washington policy analyst Chris Krueger of TD Cowen told MarketWatch he was surprised at the extent to which the market has shrugged off the potential for significant, universal tariffs.
“I take Trump at his word,” Krueger said. “And there’s not a lot of nuance when Trump talks about this stuff. He’s very direct. This is his policy North Star and it’s been that way for the 50 years he’s been in public life.”
Another fact for investors to keep in mind is that tariffs tend to be very “sticky,” Krueger said, meaning that once they are put on its very rare to see them removed as entrenched interests learn to benefit from them.
“There are still tariffs on the books from LBJ’s administration,” Krueger said. “Biden kept all of Trump’s tariffs and added to them.”
Joseph Thorndike, director of Tax Analysts tax history project, said at a panel discussion Wednesday that investors’ one hope that Trump backtracks on these new taxes is that they’ll likely be exceedingly unpopular.
Backlash in the farming community to Trump’s China tariffs forced the administration to support farmers with direct payments that reduced net tariff revenues, and similar demands from affected communities could lead to further strains on the federal budget, he said.
“What’s being ignored right now is the distributional impact of the tariffs,” Thorndike said, noting they will hit poorer families harder. “They’re going to be unpopular.”
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