The Bond Market's Big Influence on Trump's Tariff U-Turn

The bond market's sudden turbulence played a significant role in Trump's decision to hit the brakes on his planned tariffs. This move came after just one week of intense pressure from various quarters, including fellow Republicans, business leaders, and even his close associates. The bond market's reaction was a wake-up call, showing that the economic fallout could be much worse than initially thought. The Treasury Department was particularly alarmed by the bond market's behavior. Treasury Secretary Scott Bessent brought these concerns directly to Trump, highlighting the potential economic disaster. This conversation happened just before Trump announced the pause on his "reciprocal" tariff plan. The bond market's volatility was a key factor in this decision, with calls from business allies also focusing on this issue. Trump's announcement caught many off guard, including his own trade representative, who was testifying on Capitol Hill at the time. This reversal was a stark contrast to Trump's earlier stance, where he had insisted that his policies would never change. The bond market's sell-off was a clear indication that the economic ramifications of the tariffs were more severe than anticipated. The bond market's unusual behavior was a red flag. Normally, Treasurys rally during stock market sell-offs as investors seek safety. However, the opposite happened, with yields rising and demand falling at a Treasury auction. This inverse reaction raised serious concerns, especially for Bessent, who has a deep background in the bond market. Business executives and Republicans had been calling the White House, urging Trump to reconsider his tariffs. These calls intensified as the market continued to sink, with lawmakers receiving angry calls from constituents. The market rout was costing Trump political capital, which he would need for future agenda items. Bessent and other officials framed the pause as part of Trump's strategy to bring nations to the negotiating table, rather than a backdown. Trump acknowledged that the rising criticism and market losses contributed to his decision. He had been watching the bond market turmoil closely, noting that people were getting "a little queasy. " The pause was seen as a way to calm the markets, at least temporarily. However, Trump also raised new questions by suggesting he might exempt some US companies from tariffs, a decision he would make "instinctively. " The bond market's influence on Trump's tariff decision highlights the complex interplay between politics and economics. The market's reaction was a clear signal that the tariffs could have serious economic consequences. This event serves as a reminder of the importance of considering all potential outcomes when making significant policy decisions.