Theory-practice, chain reaction…

The theory producing the desired results may be possible in the laboratory. Even this becomes possible only through countless tests and repeatedly revising the theory. If the theory has been implemented outside the laboratory, if the subject is within the field of social sciences, if it affects the whole world, if it fundamentally changes the existing balances, if the theory has been directly implemented without being tested,… do you think it is possible to achieve the desired result?
The comprehensive customs tax package Trump announced yesterday aims to strengthen the USA. However, as I stated above, what kind of results it will produce is, in my opinion, uncertain.
Yesterday’s decision set will not only affect the trade of countries with the USA but also their trade with each other. At this stage, it may not be possible to perform metric impact analysis. It can be said that it may have an effect of reducing trade, slowing growth, and increasing prices.
What are the markets pricing in? Initially, it is being priced in that the US economy will slow down and the risk of inflation will increase. In fact, the risk of stagflation (recession and inflation at the same time) is also being speculated. This risk does not exist at the moment, but the new situation brings this risk-possibility to the table.
The growth-inflation risk is not only valid for the USA but also for other countries-regions. Therefore, the effects of Trump’s new decision may spread to a wider area in the coming days. At this point, how persistent Trump will be in implementation will be important. Whether he will back down or make exceptions will be a matter of follow-up. Also, whether the counterpart countries will retaliate, and if they will, at what rate and which products they will target, is critical.
The retaliation vicious cycle may make the process even more uncertain. In short, we will see whether Trump’s household account (theory) will match the marketplace (practice).
The President of the United States will continue to be the main determinant for the markets. The stone thrown by Trump will lead to chain reactions; the market will try to adapt and determine equilibrium points.
Trump is making decisions not only in the economic field but also in the geopolitical field. Peace with Russia has turned gray, tensions are rising in the Middle East (threat to Iran) and in the Pacific (Taiwan issue is heating up). Asset classes are diverging (this divergence may continue in the coming days).
Stocks, bonds, and currencies are giving different reactions. There is also divergence based on geography. However, there is one agreed-upon point, and that is the need for a safe haven. Gold continues to see demand.

Investors are initially moving away from the Dollar, but it is likely that other countries will also have growth-inflation problems.
Bond yields are falling (growth concerns and safe haven demand). Japan’s 10-year bond yield has dropped to the August 2024 level (1.34%).