Treasury Secretary Scott Bessent, in a press briefing yesterday, said that the 90 day tariff pause was because so many countries were coming to negotiate, not because of market concerns. It led to a sense that tariffs were on their way out, only held up by negotiation.

But listening to Trump was different. Trump was asked questions about his decision to reduce tariffs at an event for race car drivers yesterday. He explained that he allowed for some flexibility because people were getting “a little bit afraid” or the bond market “a little queasy” but defended the purpose and revenue interest.

Screenshot from: https://www.youtube.com/live/Mbe7RwXUiY8?si=mENjFoj6OQQKVNb5&t=4139, Associated Press

Some important quotes:

1. Explaining why he did it:

Well I thought that people were jumping a little bit out of line, they were getting yippee, you know. They were getting a little bit yippee, a little bit afraid, unlike these champions [race car drivers behind him].

2. Defending the purpose of tariffs:

No other President would’ve done what I did, no other President. I know the Presidents, they wouldn’t have done it. And it had to be done. What was happening to us on trade, not only with…you know if you look at it, not only with China, but China was by far the biggest abuser in history and others also. But somebody had to do it, they had to stop, because it was not sustainable. Last year China made 1 trillion dollars off trade with the United States. That’s not right. And now I’ve reversed it.

3. Defending the revenue. In speaking about the length of the relief:

It’s for a short period of time, but we made two billion dollars, we’re making now two billion dollars a day and somebody had to do it.

4. Downplaying the tariff relief:

Well, the big move wasn’t what I did today, the big move was what I did on liberation day. We had liberation day in America. We’re liberated from all of the horrible deals that were made. All of the horrible trade deals that were made.

5. About the bond market:

The bond market is very tricky. I was watching it, but if you look at it now, it is beautiful. The bond market right now is beautiful. I saw last night where people were getting a little queasy.

6. Responding to a question about his credibility after flip-flopping:

You have to have flexibility. I could say here’s a wall and I’m gonna go through that wall and I’m gonna go through it no matter what. You keep going and you can’t go through the wall. Sometimes you have to be willing to go under the wall, around the wall, or over the wall. These guys know that better than anybody, right? [Race car drivers behind him] You have to go around them sometimes, you’re not going to go through them.

My sense is that Trump was moved to action when he saw that that the bond market was showing real strain akin to March 2020 during the pandemic where people were selling Treasuries to get liquidity. Normally, in times of stress, Treasuries are bought, not sold. Rather than “go through the wall”, he has steered around it with the tariff pause; but not a u-turn. Ultimately, the uncertainty doesn’t go away, the negative economic numbers don’t go away, the recession doesn’t go away, and tariffs are still high. A post on X yesterday from Nick Timiraos summed up where tariff levels are after the relief; not low.

Where things stand, one week after Liberation Day
-Tariffs on China will go to 125% [now calculated to be 145%] from 104% on Wednesday and from 20% on Tuesday.
-Tariffs on all other countries (except Russia, North Korea, and Belarus) will be at 10% for the next 90 days
-Tariffs on steel and aluminum are 25%
-Tariffs on imported cars are 25%
-Canada and Mexico face tariffs of 25% on goods that aren’t eligible for USMCA

Yesterday, Trump lessened acute financial catastrophe risk, but he will keep pushing to get what he wants. The key quote from his 1987 book, “Trump: Art of the Deal” is,

My style of deal-making is quite simple and straightforward. I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after. Sometimes I settle for less than I sought, but in most cases I still end up with what I want.

Both the stock market (S&P -3.5%) and front-end of the yield curve (2yr, -5 basis points) reflected this more negative reality today. Unfortunately, the long-end of the yield curve is back to its Monday and Tuesday behavior too (30yr, +13 basis points with long-term inflation expectations, 5y5y, down 10 basis points in opposition) showing that a COVID-19-like (progressive out the yield curve) financial strain is still there. Term SOFR rates (with no term premium like Treasuries) across the yield curve have improved against Treasuries by an unusually large 9-16 basis points this month, indicating that all Treasuries are being shunned. The 30-year Treasury bid/offer spread is around 2-2.5 32nd’s where it is normally 1-1.5. There are unusual problems showing up in a few places, and something feels near a breaking point or a need to be rescued.