The markets have been loving Donald Trump’s latest 180 on trade. He now seems to be going softer on tariffs after the markets rebelled against his earlier hard-line approach.
But On The Money has learned that business leaders — those who make decisions on spending on investment as well as hiring and firing people — are still far less sanguine about the trade situation.
They’re still betting it will take a minor miracle to cut deals in a timely fashion before the economy really goes sideways.
Yes, deals with less economically countries might materialize any day now. But given what they know about our most important trading partner, China, a deal may never materialize or only do so after months of intense negotiations.
In other words, despite all the happy talk coming out of Team Trump, they’re beginning to price into their business models an economic slowdown, and a likely recession.
Job losses targeting the very people Trump considers his base — Middle America — are very much in the cards.
They’re not going very public with these fears for lots of reasons, including they don’t want to stoke the wrath of The Don, as in our famously volatile president, Donald Trump. They are telling their investment bankers how they feel, and those investment bankers are telling me, so I can tell you.
To be fair, another reason they don’t want to air their feelings is that the CEOs say there’s a smallish, but realistic chance that Trump can pull off not just the Art of the Deal, but the “Art of the Deal of the Century” in the coming weeks, On The Money has learned.
He might just be able to use his charm to woo Chinese President Xi to reform his predatory, mercantilist economy and let US companies into his markets and its burgeoning consumer base.
The rest of the world like the EU and UK also just might see that crossing the US, with its own massive consumption-based economy, is a losing formula.
The chance of Trump defying the odds as he’s done so many times in his business and political career is why you haven’t seen big companies announce significant layoffs despite all the volatility.
“The CEOs I’m speaking with give it a 20% chance that Trump pulls something off that’s positive,” said one Wall Street CEO who regularly speaks to dozens of CEOs on major business moves.
“They haven’t done anything rash just yet because they don’t want to be whipsawed. They are kind of crippled at this point.”
One thing is certain: US CEOs are in the tightest spot since maybe the financial crisis of 2007, 2008 and early 2009, when the banking system was on the brink and lending nearly ground to a halt before the government bailouts.
Global trade was an issue they thought they really didn’t have to worry about. It was more less set in stone though years of multilateral trade agreements.
Once elected president, Trump changed all that in a matter of days of course, living up to his promise to “liberate” the country from what he called unfair trade deals and return manufacturing back to the Rust Belt and Middle America and using tariffs of varying degrees as his weapon of choice.
The White House argues that tariffs pay for themselves; money will be used to pay down the debt. Manufacturing is bound to return to the country from being off-shored to China and other locales.
The CEO class says that might be the case in the long, long run, but in the short and medium run (like say years) tariffs will upend the economy. Their costs are passed to consumers, creating higher inflation. Reciprocal tariffs will result in US companies being kept out of foreign markets. That will cut growth and could lead to a recession that they say is either here or coming fast.
Even worse, CEOs worry about the lack of method to the trade madness. After announcing across-the-board tariffs, Trump instituted a “pause” on every country except China, Most recently, he said the tariffs against China won’t be so onerous, but then said maybe they will if they don’t bend to his will.
Amid the confusion, even friendly trading partners haven’t signed on the bottom line despite Treasury Secretary Bessent saying they are close to deals with India, Japan, South Korea and Australia.
Yep, kinda crazy. In this environment, businesses don’t know how to source goods from overseas, how much any of this will cost them. China is a major trading partner; for all the talk of the country’s protectionism, they are big buyers of US agriculture.
I know, all of this sounds like it’s counter to the White House spin that the trade wars are coming to an end, that even one with China is “unsustainable,” according to Bessent. Dig deeper and you will see that Bessent wasn’t quite so certain that we’re ready to deal with China or that Xi is ready to deal with us.
Xi has said nothing because he doesn’t have to; he’s president for life and won’t suffer the political consequences if the tariff war sparks inflation and a recession.
Another factor: CEOs who know a thing or two about dealing with China say its leadership hates losing face, particularly to the West, a lingering resentment over 19th century colonialism. Immediately caving to Trump on trade would be losing face, just like it would be losing face for Trump to do a 180 on the biggest policy move since being elected.
Stalemate seems to be in the cards, CEOs are telling their bankers. Now you know why businesses are crippled, and laying odds Trump won’t be able to pull off the Art of the Deal of The Century.
This story originally appeared on NYPost
