But that was last month.
Investors at this point need to shake off their whiplash, assess the new scenario, and focus on the opportunities ahead.
As we wrote in the 76report shortly after Liberation Day, two days before he announced the “pause” on Truth Social, Trump really had little choice but to shift course:
“From a long-term perspective, we continue to view a severe valuation adjustment like this as a buying opportunity, especially considering the self-imposed nature of the problem that the market is facing. After potentially underestimating the severity of the market’s reaction to the Liberation Day tariff schedule, the administration has significant incentives to fix the situation.” (Will Trump Pivot?, 4/7/2025)
In our view, the Trump administration wanted to move boldly to address trade imbalances. But it probably underestimated the extent to which both the stock and bond markets would simply reject tariffs on that scale.
To avoid a financial market and economic catastrophe, and the potential destruction of his legacy, Trump had to tell the world he would be taking a more measured approach.
The panic was severe but ultimately short-lived as investors regained confidence that the administration would adapt to market realities.
Not totally out of the woods
To be sure, tariff-related risks definitely remain. Trump has not given up on tariffs altogether, announcing over the weekend an intention to tariff movies filmed outside the U.S.
There is also abundant evidence of an ongoing slowdown in international trade, which can have ripple effects.
The combination of reduced trading activity and greater uncertainty, which prevents or delays investment and decision-making, will probably lead to slower economic growth than we might have otherwise experienced.
Yet, after an intense period of deep pessimism, there are many positives to consider, including…
(1) Tech earnings and investment appear to be on track.
(2) Consumer spending appears to be strong.
(3) Lower oil prices mean less inflation pressure and more room for rate cuts.
The tariff distraction
One of our biggest frustrations with the Liberation Day fiasco is the way it distracted from the stronger elements of the Trump economic agenda.
The tug of war between the U.S. and its trading partners over manufacturing has shifted emphasis from other policy priorities, like promoting innovation and growth through deregulation, energy expansion and tax cuts.
This is not to say that manufacturing is not an important sector of the economy, or that U.S. dependence on China and other potentially unreliable countries is not a valid issue.
Manufacturing accounts for approximately 10% of U.S. GDP and directly employs about 13 million workers in the U.S., or about 8% of the total workforce.
But, notwithstanding oft-repeated claims that U.S. manufacturing has been “hollowed out,” it is worth remembering that the U.S. still produces about $2.5 trillion of manufactured goods annually.
This represents about 16% of total global output (whereas the U.S. represents about 4% of the total world population).
The U.S. now trails China but is still a manufacturing powerhouse, especially when it comes to more technologically advanced products. It’s just that fewer workers are now required to generate this output.
Primarily as a result of automation and other process improvements, the percentage of Americans employed by the manufacturing sector has steadily declined since World War II. This is a trend that appears to have been unaffected by China’s rise.
