Markets are now ho-hum about tariff threats. Trump and Wall Street disagree about why.

Yahoo

16-07-2025

The Trump administration and many market observers are offering diametrically opposed explanations for why dramatic tariff threats have been met by a ho-hum market reaction.
The emerging White House view is that the resilience is a signal that traders are essentially fine with tariffs — and are perhaps even now on board with the effort to rebalance global trade after markets were "yippy" and "afraid" in response to a similar series of promises in April.
This view could give President Trump confidence to stick to an upcoming Aug. 1 deadline.
But many market watchers offer a wholly different explanation: They say traders hate tariffs as much as ever, but they are shrugging them off at least in part because they simply don't believe Trump's latest threats will ever come to pass.
Both can't be right, which has at least some concerned that markets may not be fully grasping the bumpiness likely ahead.
The tension was encapsulated Tuesday morning when Treasury Secretary Scott Bessent appeared on Bloomberg Television and made a case that markets are on the rise because they are looking ahead and understand that trade talks "are going to be good for the US, going to be good for the global economy."
"I think that the market understands what we're doing," Bessent said before adding a jab that "sometimes individual market people don't [understand], sometimes the television personalities don't."
The president's critics on this front, meanwhile, say they very much understand and that it's just the latest example of Trump and his team dismissing economic experts wholesale.
Other recent examples include rejecting projections of the cost of Trump's "big, beautiful bill" to a debate that broke out this week around an inflation jump that many saw as evidence that tariffs are starting to bite. The White House view, however, was that the new data "proves that President Trump is stabilizing inflation."
Or as Trump himself put it a few times this week when discussing economic forecasts, he has long been right and "the others were all wrong."
"I don't need 5,000 people working for me behind the scenes like Jerome Powell to tell him what he should say once a month," he told reporters Sunday, "because they got it wrong."
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On the tariff issue, it's more than television personalities who are pushing back against the president. Market watchers have repeatedly noted a divergence between often-rising stock prices — which reached new all-time highs in recent days — and tariff threats.
A leading explanation is that we are seeing essentially a new version of the so-called TACO ("Trump always chickens out") trade, as well as how many of these current tensions don't involve China, where some tensions are easing.
The key question is whether Trump's long-promised "flurry" of deals with other trading partners are really in the offing to lower tariff rates or, in spite of market expectations, Trump and his team are ready to move forward with the higher rates.
Trump announced Tuesday morning a trade deal with Indonesia that could adjust levies there to 19%, a significant break from the 32% tariff that Trump threatened on that country's goods just last week.
Trump and his team have also often said that higher tariffs are fine with them.
Bessent added Tuesday morning that when it comes to the European Union, Trump is "indifferent" between striking a deal for lower rates or moving ahead with his promise of 30% tariffs in that region.
It's a dynamic that has led to increased warnings that markets are underplaying the risk.
"I think investors need to take the president serious on this," Innovator Capital Management chief investment strategist Tim Urbanowicz offered in a recent Yahoo Finance appearance, adding that ongoing trade talks aren't going to resolve easily and that, for now, "the destination is higher tariffs, and I don't think investors have digested that yet."
JPMorgan Chase CEO Jamie Dimon also offered last week that markets could be underplaying a range of economic threats ahead — tariffs among them — which he said could lead to higher interest rates. He concluded during an event at Ireland's foreign ministry that "unfortunately I think there is complacency in markets, and [they are] a little desensitized."
The banker added Tuesday during an earnings call that markets have "been resilient and hopefully it'll continue," but added that "you can always have adverse consequences and it's always good to hope for the best, prepare for not the best, and then we'll see."
Read more: 5 ways to tariff-proof your finances
In any case, trade developments will remain in focus in the weeks ahead with fears that tariff headwinds on the economy — which could only increase if Trump adds new tariffs on his Aug. 1 deadline — are still to come.
The view got some new evidence Tuesday, when new data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.7% on an annual basis in June.
As a recent Goldman Sachs note said about tariffs, "investors are still trying to work out exactly how the increased taxes are affecting US companies," with the coming earnings season being looked at closely for clues.
The bottom line, the analysts expect, is "a modest drag on economic growth and a one-time boost to inflation from tariffs."
That's a fear the White House has also been dismissing out of hand.
As Trump put it recently, tariffs are fueling his view that the US is the "hottest country."
"Tech Stocks, Industrial Stocks, & NASDAQ, HIT ALL-TIME, RECORD HIGHS!" he wrote last Thursday. "USA is taking in Hundreds of Billions of Dollars in Tariffs. COUNTRY IS NOW "BACK.""
David Hollerith contributed reporting.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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