The ‘bond vigilantes’ that forced US President’s hand

“The bond market is very complicated. I was looking at it. But if you look at it now, it’s nice, the bond market right now. But I saw people were becoming a little nausea last night.”

They were more than nauseating.

There was a huge Sell-off of US government securities (government debt that occurred while the hedge fund climbed to relax the highly raised operations in what was developing in a self-financed cycle of losses while the prices of the bonds are collapsed and made them (made a crisis.

The performance of the two -year treasure banknotes had briefly risen above 4 % and the 10 -year bond return had increased by 24 basis points before the social post of Trump’s truth that announced the break in mutual rates made them fall behind, although they concentrate even higher than they had opened.

The sharemarket, which had been in free fall, down of about 12 % in a week, roar after the announcement, bouncing about 9.5 percent in a rescue event that underlined how sensitive the markets are to any development in the destructive commercial war of Trump.

American investors and commercial partners can thank the performance of the “vigilators bond” – traitors who rebel against the policies they do not like and sell from their positions – for the truce, even if those vigilantes have been forced to an involuntary action from the economic analphabatism of the Administration.

The pause in the implementation of mutual rates – rates based on a meaningless and raw equation that boils the complex exaggerated operations of global commercial relations in the simplistic notion according to which a commercial deficit with any country means that America is torn away – gives the 90 countries that face those punitive rates 90 days to consider how to respond to the requests of the United States.

The Trump administration says that over 75 of them contacted the White House, trying to negotiate.

Trump himself put in raw terms, quite coarse and hubistic.

“I’m telling you, these countries call us, kissing my ass. They are. They are dying to make an agreement,” he told a republican party dinner in Washington this week.

The countries were aligning to “kiss my ass,” he said.

“Please, Lord, make an agreement,” he said, mocking.

“I will do anything, I will do anything, Lord.”

That’s not that you win friends and you will happen to the people you are about to start negotiating with.

Without a doubt there will be dozens of countries, including Australia, offering to cut their rates to zero (many of which do not already have rates or their medium rates rates are negligible) and make some modest concessions to allow Trump to claim a victory and boast of his ability to do business. Would you like some rare lands from Australia, Lord?

China will not be one of these. China replied, as expected, to Trump’s decision to add another 50 percentage points to the rate of 54 % which cut the day of liberation with new proper rates, raising the rate on imports from the United States to 84 %. Wednesday Trump increased the United States rate to 125 % in response.

It is all overwhelming and insignificant. At the pre -existing rate of 104 %, practically all exchanges between China and the United States had still died. Trump’s response to China’s retaliation was pure theater, because neither China exporters nor their US importers could absorb an tax on the cost of 104 %. Either one or both would lose money, and a lot, on every trade.

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In fact, the third largest American commercial partner-trade among them is equivalent to $ 600 billion per year-was excluded from the US markets. The United States will have to find other sources (inevitably higher) for $ 440 billion that import from China or go without such goods. China will lose access to around $ 144 billion in US goods.

Inevitably there will be some alternative solutions. China, as he did after Trump’s latest commercial conflict in 2018-19, will reintegrate some of his exports through countries with lower tariffs and will also seek other markets, although everyone is wary of a deviated stream of cheap Chinese goods that flood their economies.

However, the effective commercial purpose between two of the largest economies in the world will have significant consequences for those economies and the rest of the world.

Trump said that Xi Jinping wants to make an agreement with the United States and that he is open to talk to him.

This is undoubtedly true: China has clarified since the beginning of the new commercial war of Trump who is prepared to discuss an agreement – but XI’s response to the rounds of Trump rates says, strongly, which he wants to negotiate from a relative force position.

He knows that the abrupt cessation of imports from China will be a success for China’s vulnerable economy, but will also generate cheap shocks in the United States. He won’t ask or kiss Trump’s ass.

Everything adds to the perception of a chaotic and unpredictable administration subject to the constantly evolution of a mad king, who is not in favor of stability in markets or economies.

The European Union, like the largest American commercial partner of Block, has announced its rates on US imports on Wednesday, responding to Trump rates on its steel and aluminum exports rather than on the basic and mutual rates. It has escaped Trump’s anger because his rates do not immediately enter into force.

It is still discussing how to respond to mutual rates, which add 20 percentage points to the US functions on EU exports. If there were a Tit-Per-Tat exchange of tariff exchanges between the EU and the United States added to the clash between China, the impact on global growth would be devastating.

Trump’s 90 -day pause acquires time but not ending the uncertainties that his commercial war has generated, nor the identification of trust in America as an ally or commercial partner.

With the universal tariff rate of 10 % still in place, the United States economy will slow down, the United States inflation rate will still increase and the spectrum of stagflation (elusive growth and increase in inflation) will remain, as is the question mark on what will happen when the 90 days will expire. The shadow of mutual rates will think of the economy and markets for the next 90 days.

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Everything adds to the perception of a chaotic and unpredictable administration subject to the constantly evolution of a mad king, who is not in favor of stability in markets or economies.

The turbulence in the financial markets, its source and its unusual nature – actions, bonds and the dollar sold simultaneously simultaneously by challenge to traditional norms – have damaged the reputation of America, undermined the dollar, the status of the market of US obligations such as world beams in volatile times and the notion of American exception. The damage could be lasting.