Stock markets were rocked after Donald Trump announced sweeping global tariffs that were even worse than feared – even bigger than the infamous Smith-Hawley tariffs during depression-era America, according to some analysts.
Investors shouldn’t have been surprised, suggests BCA Research’s Marko Papic. A year ago, Papic outlined the “seven steps of maximum pressure” that characterise Trump’s negotiating style.
- “Ask for the moon” and open with “maximalist goals that are bordering on fantasy”.
- Follow up with “madman” behaviour and overwhelming threats.
- “Punch someone in the mouth” to back up your maximalist threats.
- Break bread, make friends, start negotiations.
- Leave the bride at the altar, causing negotiators to scramble to accommodate you.
- Kiss and make up.
- Make a deal, and proclaim it to be the greatest deal ever.
In January, Papic suggested investors save themselves time and stress, and focus on these rules rather than on Trump’s social media posts. “Trump must take a hard line on tariffs as that is the only way for them to be an effective negotiating tool,” he said, adding Trump would eventually “moderate his fiscal agenda”.
Papic’s stance hasn’t changed, saying Trump will walk back his extreme trade positions once his approval ratings and US unemployment figures start deteriorating. He thinks markets may be near peak uncertainty right now, although it’s not a given that risks will abate.
Firstly, there is a danger that asking for a price so high causes some countries to walk away. Secondly, timing is crucial. The US can likely avert a recession if it walks back its positions in coming weeks: wait three to six months, and it may be too late.
For now, markets are holding their breath, waiting to see whether Trump sticks to the script, or rewrites it entirely.
