Written by: Luke, Mars Finance
On April 23, 2025, the global financial market is at the center of a storm. Recent unexpected policy shifts by U.S. President Trump, from public criticism of Federal Reserve Chairman Powell to a sudden softening of tariffs on China, have triggered intense fluctuations in market sentiment. All of this not only has Wall Street traders holding their breath but has also caused global investors to reassess the outlook for the U.S. economy. Will Trump’s “softening” provide the market with a breather? Or is it merely postponing a larger crisis?
- Trump’s “softening” and the dramatic reversal of market sentiment
On April 22, Trump delivered a speech at the White House, announcing that the 145% tariff on China “will be significantly reduced,” although “it will not go to zero.” This statement sharply contrasts with the previously tough stance on the trade war, instantly igniting market optimism. On the same day, the three major U.S. stock index futures surged rapidly, with Nasdaq and S&P 500 index futures both rising over 2%, and Dow Jones index futures also recording an increase of more than 1.5%. Bitcoin broke through $93,000, reaching a nearly two-month high, while gold prices fell back below $3,300, indicating a retreat in safe-haven sentiment.
Trump’s “softening” is not an isolated incident. On the same day, U.S. Treasury Secretary Scott Basset sent a similar signal at a closed-door investors’ meeting, stating that the high tariffs stalemate between China and the U.S. is “unsustainable” and predicting that tensions will ease in the coming months. Basset’s remarks infused confidence into the market, leading investors to bet on the possibility of breakthroughs in China-U.S. trade negotiations. However, Basset also admitted that a comprehensive agreement could take two to three years, indicating that the easing in the short term is more of a tactical adjustment rather than a strategic shift.
Trump’s shift is not entirely surprising. The 145% tariff - which includes a 20% tariff imposed due to the “fentanyl” issue and a 125% “reciprocal tariff” - has pushed US-China trade to the brink of near standstill. China’s retaliatory measures, particularly the 125% tariff on American agricultural products like soybeans and corn, have severely impacted US exporters. American farmers and manufacturers dependent on the Chinese market have suffered significant losses, while the prices of imported goods driven up by high tariffs have begun to erode the purchasing power of American consumers. Faced with domestic economic pressure and global supply chain tensions, Trump has had to adjust his strategy, attempting to gain breathing room for the US economy by easing the trade war.
Powell’s “holding the position” and the temporary victory of Federal Reserve independence
At the same time, Trump’s offensive against Federal Reserve Chairman Powell has quietly subsided. Previously, Trump had publicly criticized Powell multiple times, calling him a “major loser” and hinting that he might fire him. This statement raised concerns in the market about the independence of the Federal Reserve, leading to a rare “triple kill” situation on April 21, where the Dow Jones index once fell by more than 1,300 points, the dollar fell below 140 against the yen, hitting a three-year low, and the yield on the U.S. 10-year Treasury bond surged due to selling pressure.
However, on April 22, Trump suddenly backtracked, stating that he had “no intention” of firing Powell. This statement quickly calmed the market’s panic, with the dollar index rebounding to around 99, US bond prices recovering, and the stock market also experiencing a wave of rebound. Analysts pointed out that Trump’s concession was not out of respect for the Federal Reserve, but rather due to market pressure. Firing Powell is not only legally contentious but could also lead to more serious consequences. As Paul Ashworth, Chief North American Economist at Capital Economics, warned, removing Powell is just the first step in undermining the independence of the Federal Reserve; if Trump further intervenes in monetary policy, it could lead to a sharp decline in the dollar, soaring US bond yields, and even trigger a chain reaction in global financial markets.
Despite Powell temporarily holding onto his position, the Fed’s situation remains difficult. Trump’s strong expectations for interest rate cuts sharply contrast with Powell’s adherence to a sound monetary policy. The market generally expects that the Fed will continue to maintain high interest rates in the first half of 2025 to address persistent inflationary pressures. This suggests that the U.S. economy may face greater downside risks, and whether Trump’s policy shift can effectively alleviate this pressure remains uncertain.
The Aftermath of High Tariffs and Concerns for the U.S. Economy
Although Trump’s high tariff policy has secured negotiation leverage for the United States in the short term, its side effects are becoming apparent. First, high tariffs have directly driven up the prices of imported goods, especially daily necessities, electronics, and clothing imported from China. These costs are ultimately passed on to consumers, particularly low- and middle-income families, whose disposable income is under greater pressure. Second, American companies are highly dependent on Chinese raw materials and components, and high tariffs have led to increased manufacturing costs, while adjusting supply chains is expensive and time-consuming. More importantly, China’s retaliatory tariffs have severely impacted American exporters, particularly agricultural exporters, who have lost this key market in China.
Goldman’s latest research further reveals the potential impact of tariffs on the economy. The report points out that the inflationary effects pushed up by tariffs usually become apparent within two to three months after implementation, while consumer spending will rapidly slow down after price increases. Core retail sales, as a leading indicator of consumer spending, may issue warning signals in the coming months. In addition, tightening financial conditions and rising policy uncertainty will weigh on capital expenditures, with capital expenditure growth expected to decline by 5.5 percentage points in the second half of 2025. These factors combined may lead to signs of weakness in the U.S. economy in the late summer.
What is even more concerning is that recent business survey data has raised alarms. The Philadelphia Fed Manufacturing Index and the ISM Services Index have significantly declined, with some indicators even falling to their lowest levels during non-recession periods. Although soft data in recent years has been overly pessimistic due to factors such as the pandemic, Goldman Sachs believes that the current deterioration signals may be more reliable, as they are primarily driven by expectations of declining activity rather than temporary biases related to the pandemic. This suggests that the U.S. economy may be sliding toward the brink of recession, and whether Trump’s “self-correction” can reverse this trend still requires further verification by more economic data.
Market Outlook: Short-term Rebound and Long-term Uncertainty
Trump’s policy shift has brought a short-term breather for the markets. The rebound of U.S. stocks on April 22 shows that investors are confident in tariff easing and the restoration of the Federal Reserve’s independence. Bitcoin has surpassed $93,000, reflecting a resurgence in the attractiveness of risk assets. However, the sustainability of this rebound is questionable. The following key factors will determine the future direction of the market:
Validation of economic data: The upcoming initial jobless claims, unemployment rate, and first quarter GDP revision will be the focus of market attention. If Michigan’s inflation expectations remain “stubborn,” or if GDP data is significantly revised downward, the market may revert to the theme of “inflation and economic harm,” and the rebound momentum of U.S. stocks will quickly fade.
Federal Reserve’s Policy Stance: Despite Powell temporarily holding onto his position, the Federal Reserve’s tough stance under high inflation pressure could exacerbate the risks of economic downturn. If the Federal Reserve continues to refuse to cut interest rates, the resilience of the U.S. economy may collapse first, and Trump’s intervention pressure may resurface.
The Independence of Bitcoin: Bitcoin recently broke through $93,000, partly due to an improvement in market sentiment. However, as safe-haven demand weakens, it remains to be seen whether Bitcoin can maintain its unique narrative as an “economic hedge.” If subsequent economic data triggers a decline in U.S. stocks, Bitcoin’s independence will face a test.
Impact on the Global Economy: The International Monetary Fund (IMF) latest “World Economic Outlook” warns that the global economy is still themed around “recession.” Trump’s easing of tariffs may provide some relief to global supply chains, but if the U.S. economy falls into recession, the global economy could be dragged into a deeper quagmire.
How far can Trump’s “softening” go?
Trump’s policy shift has undoubtedly injected a brief sense of optimism into the market, but behind it lies deeper uncertainties. The aftereffects of high tariffs, concerns about the U.S. economy, and the Federal Reserve’s policy dilemmas may reignite market volatility in the coming months. In the short term, U.S. stocks and risk assets may continue to rebound, but investors need to closely monitor economic data and the Federal Reserve’s movements. Once recession signals become more evident, the market may face greater challenges.
For Trump, “softening” may be a tactical move, but to truly stabilize market confidence, more substantial policy adjustments are needed. In the current turbulent global economy, whether the U.S. can avoid recession and whether the global economy can escape the fate of being “collateral damage” depends on the next moves of the Trump administration. For investors, staying vigilant and cautiously positioning themselves is the best strategy to cope with this storm.
