Should Traders Take President Trump at His Word?

Given a history of flip flops, does it make sense to Take President Trump at His Word?

As I noted, Trading in the New Trump Effect Era: Actions Speak Louder Than Words.

Well, President Trump is never at a loss for words as he has followed through on his campaign promise to impose tariffs.

However, these are still just words until tariffs are actually enacted. This suggests there are more questions than answers.

What is the tariff end game?

Is it to punish US trading partners?

Is it to play a game of chicken to gain concessions in return for exempting or limiting tariffs on specific goods for individual countries?

Or is it to burn the house down by forcing retaliation and a trade war that the US is in a stronger position to withstand?

Arguing for a game of chicken is the way Canada and Mexico agreed to tighten their borders after the first tariff salvo was threatened right after Trump took office.

In addition, a trade war benefits neither side so we will have to see what negotiations take place ahead of the March 4 date when 25% tariffs are levied on aluminum and steel imports into the US. The same probably holds true for reciprocal tariffs to be announced today as traders initially priced in the worst case outcome and are now reassing that view.

With President Trump it pays to sometimes throw logic out the window and expected the unexpected. Much will depend on how the tariff soap opera evolves, whether there are negotiations or retaliation and if the latter how Trump would respond to the latter.

What are markets saying?

Markets, meanwhile, seem to be betting on logic and hope that the situation does not escalate into a trade war. So, this would be the surprise for those taking a more optimistic view.

For traders, remember that actions speak louder than words even though markets seem fixated on news headlines awaiting the end game to play out.

Read more: Will Trump’s Tariffs Turn into a Nothing Burger?

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