Is Trump the creator of the U.S. economic recession, or is he the accelerator of the U.S. economy? Under the carrot and stick, where is the turning point for the U.S. stock market and cryptocurrency?
Last night, while having dinner, I was chatting with friends about Trump. After returning home, I saw that @shufen46250836 also had similar views, so I thought it was necessary to discuss this in depth. This perspective may help friends judge whether the upcoming market will be a bull market rebound or if we are entering a bear market.
Viewpoint:
Trump is not blind to the stock market's decline, nor is he unaware of the potential impact of increased tariffs on risk markets, or the effect tariffs may have on U.S. inflation. The fact that he knows it’s not good but still chooses to proceed is because Trump needs the U.S. to quickly enter a phase of economic recession. Only through recession can inflation be rapidly reduced, which would then force the Federal Reserve to significantly lower interest rates.
The main goal is that the current U.S. fiscal deficit is too large, especially the interest payments on U.S. debt. According to Deutsche Bank's analysis, by 2025, under a maintained interest rate of 4.5%, the total interest that the U.S. needs to pay on its debt will be $1.3 trillion, and this is just the interest.
If the Federal Reserve expects to cut rates twice in 2025, both in the third and fourth quarters, it won't significantly help the U.S. fiscal deficit. However, if the U.S. enters a recession that leads to a substantial drop in inflation, and the Federal Reserve raises the number of rate cuts in 2025 to four (1%), the interest payments could be reduced by $75 billion, and in the long term, it could decrease interest payments by about $360 billion.
If the Federal Reserve can cut rates eight times (2%) in 2025, it would alleviate nearly half of the fiscal pressure.
Thus, the friends holding this viewpoint mainly believe that Trump wants to first break the current situation and then rebuild. The saved interest payments can be used for more guiding investments or to boost U.S. economic growth, rather than to pay more interest and increase the government's burden.
Debate:
But is this viewpoint really accurate? Perhaps only Trump and a few cabinet members know for sure. If we assume that Trump intends to do this, what is he missing?
He is openly criticizing the current interest rates and attacking the Federal Reserve and Powell. If Trump needs to break the current situation to establish a new one, he should be calling out to Powell from a distance, urging the Federal Reserve to cut rates quickly. Moreover, Trump needs to provide a continuous supply of ammunition for rate cuts, such as maintaining tariffs, rather than stopping after just two increases. For DOGE, he should allow significant layoffs rather than forcing DOGE to relinquish its rights.
However, what Trump is doing is completely the opposite. After the Federal Reserve did not change interest rates in January, Trump praised the Federal Reserve and encouraged that not cutting rates was the right choice. In March, he even announced through the Secretary of Commerce that Trump was not urging the Federal Reserve to cut rates. More importantly, even if all of this is just Trump's personal performance, his aides would arrange for allies to call out from a distance, but we have not seen any strong members of Congress directly confront the Federal Reserve.
From another perspective, this is Trump's last term. Is he willing to end his tenure with an economic recession? I believe Trump is not that selfless; he has a strong performative character and hopes to achieve the slogan of "America First" under his leadership.
Moreover, during his previous term, Trump often claimed to be the only president who did not have a war during his time in office. Causing an economic recession is not a good option for Trump.
So what is the purpose of Trump's tariffs?
To fulfill his campaign promise of bringing manufacturing back to the U.S. and creating better job opportunities. The new USMCA agreement serves this purpose, and by increasing tariffs on Mexico and Canada, he aims to force both countries to compromise and establish more manufacturing environments in the U.S., such as in the automotive sector.
The tariffs on Europe are more about balancing the war between Ukraine and Russia. Trump has long wanted to stop the Russia-Ukraine war, so the pressure is on Ukraine. However, since Europe has been supporting Ukraine, Trump hopes to force Europe to stop its aid to Ukraine by increasing tariffs.
Why is Ukraine so important? Because it relates to sanctions against China. After limiting China's semiconductors, China retaliated against U.S. rare earth minerals. The untapped rare earth minerals in Ukraine are exactly what the U.S. needs to replace China, and Ukraine is relatively easier to control than China.
As for China, we won't discuss it. After all, it stems from America's political correctness.
From the current perspective, Trump's tariff policy resembles a weapon rather than a result, which is why he announced the possibility of lowering tariffs on Mexico and Canada after two suspensions.
The essence of reciprocal tariffs is to lower U.S. import tariffs.
The additional tax revenue that tariffs can bring to the U.S. is about $100 billion per year. While this tariff revenue can help fill the U.S. fiscal gap, the cost is that American households will lose about $1,200 in purchasing power. Additionally, tariffs may lead to a reduction in U.S. GDP by $200 billion, which is not a worthwhile trade.
Trump's ultimate goal with tariffs should be to create an environment of "low inflation, low interest rates, and strong employment" for the U.S. economy. He wants U.S. manufacturing and energy supply chains to be more independent from China and Europe to achieve stronger economic dominance. However, whether tariffs can accomplish this transformation is a huge question mark!
If Trump is deliberately causing a recession, as the economic downturn intensifies, the U.S. may not be able to truly achieve the return of manufacturing, as companies may choose cheaper production locations instead of the U.S.
If a recession leads to a decline in global market demand, U.S. exporters may face greater shocks, further widening the trade deficit. Therefore, even if Trump's policy goals are reasonable, the implementation path may bring unexpected side effects.
Conclusion:
From my personal perspective, Trump does not want the U.S. economy to enter a recession, nor does he intend for tariffs to cause an economic downturn. It is possible that he believes using tariffs as a weapon can resolve the USMCA agreement while promoting a ceasefire in the Russia-Ukraine war, and that a ceasefire leading to lower inflation is preferable to allowing the economy to first decline and then recover.
Historically, even interest rate cuts triggered by a recession take about 12 to 16 months to bring rates back down, and it takes about a month for the market to recover. By that time, not only will the midterm elections have passed, but Trump’s term may also be halfway over. Whether the remaining time can bring the economy back to the strong performance seen during Biden's era is uncertain, let alone leaving a good name in U.S. history.
A family may reduce some expenses due to high monthly spending, but it would never go so far as to bankrupt itself to cut costs. While bankruptcy may reduce monthly expenses, I believe no family would use such a method to control spending. I think Trump is the same.
Not over yet!
While this debate may seem correct, it overlooks a key question: if the U.S. is bound to enter an economic recession, will Trump try to delay the recession process or accelerate it?
The answer is likely the latter. If by 2025 the U.S. economy is indeed struggling, then Trump is not the creator of the recession but rather an accelerator of it. The possibility of Trump leveraging this situation is quite high, but this is entirely about anticipating the outcome.
Trump mentioned the return of manufacturing and tariffs during his campaign. Unless he anticipates that the U.S. economy will inevitably enter a recession in 2025, this approach may not be sustainable. After all, when the Biden administration ends, the economy and employment are performing very strongly.
Trump wants the market to believe he is the leader of economic recovery, not the instigator of recession.
Trump hopes the U.S. economy will recover during his term, rather than waiting until 2027 for the economy to warm up. For the past 40 years, the U.S. government's policy model has relied on interest rate cuts and fiscal stimulus to maintain economic growth, but Trump may want to promote a strong manufacturing economy characterized by "high employment, low inflation, and low interest rates," rather than simply creating an asset bubble. This is why Trump does not directly call for Powell to cut rates but instead tries to push for "economic transformation" through tariffs and fiscal adjustments.
This includes the return of manufacturing during Trump's campaign.
In the past four years, the Biden administration's core strategy has been to stabilize the market, relying on government stimulus such as fiscal subsidies and infrastructure bills. However, Trump prefers to achieve his goals through deals and pressure. Trump is not a traditional "economic hawk"; during the 2017-2020 period, he pressured the Federal Reserve to cut rates multiple times, even directly calling out Powell when the stock market fell. This time, although he has not directly attacked the Federal Reserve, he is gradually building pressure through policy.
His strategy resembles "I first give you a big stick (tariffs), then offer a carrot (tax cuts)."
What Trump may do is remain indifferent to the economic downturn, and when falling prices trigger widespread panic among investors, he will step in to assist the Federal Reserve in cutting rates to stabilize the market. After all, Trump's philosophy is to first increase tariffs externally and then stimulate the economy internally through tax cuts.
Moreover, Trump and cabinet members have repeatedly stated that the U.S. may enter a "transition" period, which may show signs of decline. Therefore, tariffs are likely to become a "booster" for economic decline, quickly completing the "de-leveraging" in the market. However, Trump may not want to set the U.S. economy on a path to recession, so after de-leveraging to a certain extent, he will stimulate the stock market again through tax cuts.
In yesterday's article on judging "bull and bear markets," I highlighted two key events: the cancellation of SLR and the pause in balance sheet reduction. Now we can add a third indicator: when Trump announces tax cuts, it may be the time when the U.S. stock market is ready to rise again.
Of course, I hope we do not enter a recession before that, and I wonder if Trump will wait until the U.S. first-quarter GDP data comes out in April before announcing it.
Finally,
The debt ceiling issue has been settled. In the second half of 2025, if the market expects the Federal Reserve to cut rates + Trump to cut taxes + easing of U.S. debt issues, then the U.S. stock market and cryptocurrency market may not miss out on a rebound.
This post is sponsored by @ApeXProtocolCN | Dex With ApeX
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
