Confidence in Trump’s Tariff Strategy May Be Waning Amid Growing Speculation
The White House has been touting President Donald Trump’s bold tariff policy as a key component of his economic strategy, but recent developments suggest that confidence in this approach may be waning. Despite months of intense negotiations and promises of major trade deals, no significant agreements have materialized. As a result, analysts are speculating that the administration is shifting from an aggressive negotiation strategy to a more tactical retreat.
A Change of Heart on Federal Reserve Chair Jerome Powell
In recent weeks, Trump has undergone a dramatic about-face regarding his criticism of Federal Reserve Chair Jerome Powell. After months of lambasting Powell for not cutting interest rates aggressively enough to boost economic growth, Trump suddenly declared that he had "no intention" of firing the Fed chairman. This change of heart has raised suspicions among some analysts that the move may be more about managing blame for potential economic fallout rather than a genuine attempt to calm markets.
Managing Blame and the Art of Retreat
UBS chief economist Paul Donovan pointed out in a recent note that Trump’s decision not to fire Powell can be seen as part of a larger strategy of "the art of the retreat." According to Donovan, this tactic involves presenting oneself as a reluctant participant in a situation while secretly preparing for the consequences. In this case, Trump’s sudden softening toward Powell may be a way of ensuring that someone other than himself is blamed if the economy does experience a slowdown.
A Potential Fall Guy
Some analysts believe that Trump needs Powell as a "foil" – someone to blame for any economic downturn that may occur. This would provide a convenient excuse for the president’s own policy agenda, which has been criticized for being overly aggressive and protectionist. Deutsche Bank notes that analysts had priced in a 78% chance of a rate cut in June but saw this drop to 57% by Wednesday. Trump’s attacks on Powell have already provided a potential bedrock of blame for any economic slowdown.
A Significant Miscalculation?
The fact that Trump is changing his tune on some of his loudest talking points suggests that the administration’s aggressive foreign policy may not be landing as well as hoped. Despite promises of "90 deals in 90 days," no major trade agreements have emerged. Treasury Secretary Scott Bessent has begun touting the benefits of being the "first mover" to encourage at least one foreign government to reach a deal, but nations that had been earmarked for quick agreements are now indicating they’re in no hurry.
A Cautionary Note from China
China has warned that any nation coming down on the opposite side of its agenda would face consequences. This is not the "fast-paced period of negotiations" promised by the White House. Trump may be tightening the thumbscrews to get the ball rolling, but the administration’s approach seems to have been met with skepticism from its trading partners.
A Possible Shift in Strategy
The comments made by Macquarie strategists Thierry Wizman and Gareth Berry suggest that Trump may be sidelining his ideologues, such as Peter Navarro, and giving more voice to pragmatists like Scott Bessent. This could indicate a shift towards a more pragmatic approach to trade negotiations, one that prioritizes reengagement with the administration’s allies over confrontation with China.
Markets React with Caution
The prospect of a lower tariff rate with China has buoyed markets, but analysts remain cautious about the long-term implications of Trump’s policy. A move back towards his campaign pledges of a 10% universal baseline tariff and a 60% tariff on China would indicate "a more predictable direction [of foreign policy] from here," according to Jim Reid, global head of macro research at Deutsche Bank.
Conclusion
The White House’s confidence in Trump’s tariff strategy may be waning as the administration faces growing skepticism about its ability to deliver major trade deals. The recent change of heart on Federal Reserve Chair Jerome Powell has raised suspicions that the move is more about managing blame than a genuine attempt to calm markets. As analysts continue to scrutinize the administration’s approach, one thing is clear: the art of retreat may be becoming an increasingly important skill for Trump’s economic team to master.
