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The market chaos unleashed by Donald Trump's trade war continued for a third day, as stocks, bonds, and commodities all swung wildly, buffeted by both fears of a recession and speculation the financial damage will drive him to change course. Let's bring in Cheryl Smith. She's an economist and portfolio manager at Trillium. Cheryl, good to have you with us. The market pain, if you're long in this market that we've seen has been caused by concern around tariff policy.
I think many people would argue this is self inflicted. Do you think this continues or do you think that the president will change course.
I think that this chaos that we're seeing is going to continue. For whatever reason, Trump likes to work in chaos. He appears to think that it keeps people on their back foot and that he can gain some kind of
advantage from it. So the tariff policy really couldn't have been constructed more perfectly to create tariff He puts them on, he takes them off, he puts the money takes them off, and then there was a false rumor today that he was going to delay them by ninety days, where we got that seven percent intra day swing in the S and P five hundred. Really, everyone is on tetra hooks. Nobody knows what's real, and everybody is following the news
to try and figure this out. So I think we're going to continue to see this chaos for quite a long time.
Cheryl, what do you make of the upward move in treasury yields today? I guess over the longer term they have come down. That's something that President Trump has touted that interest rates are falling. But what does it tell you on a day like today when equities are so volatile, and yet we do have yields climbing pretty steadily. Ten You're up twenty paces.
Points just on the day.
Yeah, I think that what that tells us is that the Fed has pretty well signaled that they are not riding to the rescue. They are concerned about how the effect of these tariffs is going to play out for the US economy, but they do not yet have the data to understand it at this point. So we had
some comments from Powell on Friday. We had other comments today where they're saying, no, actually, he doesn't get to do this on tariffs and then have the FED come and ride to the rescue and cut rates a lot more. And even if the FED did start doing emergency cuts for rates, I actually think that would be an even worse signal. So I think we saw a bit of bond euphoria, if you will, or you know, heading for the hills, just as a way of getting out of
on Thursday and Friday. Treasuries were the easiest thing to buy. Probably some repositioning today.
I'm going to call you doctor Smith because you have a PhD. You're an economist by training. True, are you concerned guilty as charge?
Really?
But it's good to have you talking to us about this because you have training in this, and I want to know if you think, from an economic policy perspective, what the economic consequences of this tariff policy could be on the US economy.
I think the economic policy consequences can actually be quite dire, and I base that on the size of the tariffs relative to the Smooth Holly tariffs of nineteen thirty, which many people quite credibly think prolonged hastened and deepened the Great Recession, and they set off, as we are seeing set off now, a round of competitive They called them beggar thy neighbor policies, of tariffs going one country, another country, retaliating, and so forth, building up in the way that you're
looking at China right now, with the United States putting on successive tariffs, China coming back and saying well, they're going to restrict things, and Trump coming out today and saying, well, in that case, I'm going to raise you another fifty
basis points. This is very destructive, and we have trade works under the economic concept is called comparative advantage, that we really do better if each country does the things that it is best suited for by geography, by natural resources, by training of people to produce, and then trade so things are made most cheaply. We've seen a tremendous expansion of trade in the twentieth and twenty first century because
of the fall in transportation costs that we've experienced. So we have a lot more trade going on now than we had in the nineteen thirties when the smooth Holly tariffs were put on. So I think this is really going to be a very very difficult period of transition. And most importantly, this chaos and this uncertainty that he has created means that businesses and consumers really can't plan. So for consumers, I think they're going to increase their
precautionary saving. They're going to say maybe I'm going to put that off for now, I'm not going to buy that I might need it later. Things could be getting a lot worse. That's bad. On the investment side, companies have no idea what they should do in terms of organizing their production. Now, if the production they're organizing were let's say pizza parl it's easy enough. Do you buy a pizza oven or do you not buy a pizza oven.
We're not talking pizza parlors. We're talking semiconductor factories, we're talking steel mails, we're talking major production plants. And any company has to look at this and say, how do I possibly make a decision about what the tariffs are going to be when I'm through making that investment, whether that is a year, two years, or seven years down
the way. So it's going to affect the amount of investment that's going to have a significant effect on GDP growth and I think we've increased the risk of recession dramatically over the past four days.
Pretty heavy stuff, Cheryl. We appreciate you joining us. Cheryl Smith, economist and portfolio manager at Trillium and joining us from Cambridge, Massachusetts.