Last week, markets rallied on news of accelerated negotiations with the EU, only for the International Trade Court to unanimously strike down the Liberation Day tariffs as unconstitutional. Then, the next day, a federal appeals court overruled that decision. It’s chaos, and it all drives interest in alternatives like the Middle Corridor, the new-old Silk Road from China to Europe, with talk of tunnels under the Caspian Sea. Trump sees tariffs as negotiation leverage - make an outrageous offer, get a counter, and start talking. It’s classic Trump and it’s not going away.
How strong is the link between tariff and fiscal policy?
Back in the Reagan years, there was real concern about budget deficits and whether government debt would crowd out the private sector in bond markets. That fear never really materialized, and we stopped talking about it for decades. Now, the deficit is once again center stage, especially given how trade policy is affecting foreign bondholders. As for the proposed tax bill, keeping the corporate tax rate at 21% is good and essential for U.S. competitiveness. This bill preserves the 2017 tax rates under Trump’s first administration, which brought in more revenue than the Congressional Budget Office projected.
Do you expect US lawmakers to impose any limits on the tax bill?
We keep calling it a tax bill, but really it’s a budget bill. And the issue isn’t that we’re under-taxing, it’s that we’re overspending. They’ve tried to reform entitlement programs like Medicaid by adding work requirements, but the big-ticket items are defense and interest payments. We’re nearing the tipping point where the U.S. spends more on interest than on national defense. That’s a deeply concerning prospect.