How this resolves itself is hard to know, but it will.

A faint hope that Trump would offer some reprieve at the last minute led to a relief rally at the start of trading on Tuesday. As the day progressed, it became clear that Donald Trump was not bowing to market turmoil and was happy to push the world into a full-blown trade war. The US president’s tariffs include a 104 per cent levy on China and duties on nearly all imports, possibly reversing decades of liberalisation in the world economy. Something John Authers described as doubling down on dumb. Markets in Europe and around the globe are set for another testing day. Yesterday was the largest blown gain for the Nasdaq since at least 1982, according to Dow Jones Market Data, as an initial rally of 4% turned into a 2% decline. 

Trump confidently proclaimed that interest rates and oil prices were down and that he was achieving what he had set out to do. That was true for a while, and whilst oil prices remain lower, yields are starting to rise again after a weak demand for a treasury auction yesterday.

Since tariffs were announced last Wednesday, the S&P 500 is now down 12% and almost 20% from its peak earlier this year. The Nasdaq is already in a bear market; by the end of today, it most likely will be the S&P 500’s turn. The more the stock market pressures Trump to negotiate, the more he seems determined to tough it out. Ignoring the warnings, all these measures will lead to is lower growth and higher prices. Not sure that all of his Republican colleagues have his sense of conviction. During a Senate Finance hearing, Thom Tillis enquired, “Whose throat do I get to choke if this turns out to be wrong?” The more the world tries to tell Mr Trump that these tariffs defy economic logic, the more entrenched he becomes, and the more politicians and investors fear the economy will likely suffer.

Leaders such as JP Morgan’s Jamie Dimon to some degree sympathise with the president’s actions. In his shareholder letter, he acknowledged that “damaging trade practices,” especially from China, have hurt workers. What he is concerned about is that the actions are too extreme. He described the current outlook as “ the most perilous and complicated geopolitical and economic environment since World War II. ” Despite recent falls, many of the companies that make up the S&P 500 cannot be described as cheap yet. How this resolves itself is hard to know, but it will.