Wall Street's Optimism on Trump's First Day: A Complex Balance

Donald Trump and corporate America seem to have a surprisingly good relationship these days. However, his trade agenda appears to conflict with the preferences of many big businesses.

In recent weeks, influential tech leaders, such as Jeff Bezos and Mark Zuckerberg, who had shown mixed feelings towards Trump during his campaign, have been seen interacting positively with him. Notably, Elon Musk has taken on an important role as an advisor to the president. Additionally, Trump’s choice for treasury secretary, hedge fund manager Scott Bessent, was well-received in financial circles.

Despite these positive interactions, Trump's promised trade policies may pose challenges for these industries. On the campaign trail, Trump proposed significant tariffs on imports: 10% to 20% on all incoming goods, 25% on products from Canada and Mexico, and as high as 60% on goods from China. This protectionist agenda, which is even more extreme than what he attempted in his first term, could have negative impacts on technology companies, including increased semiconductor costs and lower stock valuations due to reduced economic growth.

As Trump took office, investors were on edge, eager to see whether his inaugural actions would protect the open trade that benefits big business or reinforce his fixation on reducing trade deficits. The actions taken on Day 1 weren’t completely clear-cut. While he maintained a commitment to protectionism during his inaugural speech and planned investigations into trade practices, he didn't impose any new tariffs that might have alarmed markets.

Wall Street celebrated Trump's reluctance to establish new tariffs on the first day, interpreting this as an indication of a potentially more measured approach to trade policy. Stock prices increased while the U.S. dollar decreased, since high tariffs often lead to a stronger dollar.

However, analysts warn that this relief might be temporary. Trump has consistently expressed concern over the trade deficit, and he later suggested a possibility of enacting tariffs on Canada and Mexico. Because these comments were made casually in response to a question, it's uncertain whether this was a genuine plan or merely off-the-cuff banter.

While Trump's cautious stance on trade could imply some level of influence from more business-oriented advisors, many questions remain. His commitment to investigating trade and establishing a new agency to enforce tariffs signals ongoing internal clashes within his administration over trade policies.

Wall Street's Comfort with Trump's Trade Policies

In the weeks leading up to his inauguration, some of trump's nationalistic advisers had encouraged him to swiftly declare a national emergency on trade. This could have granted him sweeping powers to impose steep tariffs without the usual procedures. However, Trump chose not to pursue this idea on his first day in office. Instead, he expressed his determination to reshape the trade system but avoided detailing a comprehensive tariff plan.

Many investors found this lack of immediate drastic measures reassuring. It suggested that the business-friendly segment of Trump's administration was able to exert some influence over his trade agenda. Reports even emerged about narrowing his overall tariff proposals to focus solely on sectors identified as essential for national security. Trump’s self-restraint could reflect an adjustment to his administration's initially more aggressive ambitions.

Yet, with Trump occasionally doubling down on threats of tariffs, especially against major trading partners, the situation remains fluid. His past declarations regarding tariff measures raise the possibility that some of these policies could still come into play in the near future.

Reasons for Trump to Moderate Trade Policies

Much speculation surrounds Trump's trade actions moving forward. There are several plausible reasons why he might choose to wield caution. Firstly, harsh tariffs would likely provoke backlash from many sectors of his own coalition, harming both supporters and voters. The impact of tariffs can raise prices for consumers and impede numerous businesses.

Second, Trump's attention to stock market activity has been a focal point throughout his administration. He has previously linked stock market performance to the success of his policies, demonstrating a clear interest in maintaining a buoyant economy.

Lastly, Trump has shown willingness to accommodate the interests of tech companies, even amid his nationalist rhetoric. His public support for immigration policies that benefit tech companies further signals that he may prioritize economic needs over hardline nationalism.

Trump’s Beliefs in Trade Protectionism

Despite these considerations, Trump has long held strong views against free trade. He has campaigned for tariffs on foreign goods for decades, believing that they harm American workers. Without any electoral constraints, he feels empowered to chase his ideological vision, often without considering opposing perspectives.

Currently, Trump's administration is seeking to advance his trade agenda, which could lead to stricter policies based on his original ambitions. As numerous actors in corporate America align with Trump, there will always be an element of uncertainty surrounding the balance between his protectionist beliefs and the needs of big business.

Trump, Trade, Markets