Learn lessons from Trump 1.0 to have a good idea of what to expect in next 2-4 weeks: Hugh Johnson

Time of India

08-07-2025

Hugh Johnson
of
Hugh Johnson Economics
, says echoing the trade conflicts of 2018-2019, the current tariff negotiations are causing significant
market volatility
. The on-again, off-again nature of these discussions mirrors the Trump 1.0 era, creating substantial uncertainty for business leaders. This uncertainty, compounded by the tariffs' economic impact, is negatively affecting
business confidence
and, consequently, the stock market.
The US has a trade deal in place with some countries. For some, there is no deal yet and for some countries like India, it looks like the deal is still in the works. How should markets look at the 9th of July deadline in terms of the tariff playbook?
Hugh Johnson:
You have to learn your lessons from history. All of us should learn our lessons from the so-called Trump 1.0 2018-2019 tariffs and trade wars. One of the distinct characteristics of that trade war which you are now seeing in the last couple of hours is that these are on again, off again negotiations and they are extraordinarily volatile and they lead to an extraordinarily high level of uncertainty among business people. That's what happened in 2018 and 2019. It is happening again now. It is leading to uncertainty and that uncertainty alone, let alone the economic impact of the tariffs, is creating problems for business leaders and therefore the stock market. I think that is the first thing; learn the lessons of 2018 and 2019 and you will have a good idea of what to expect in the next two to four weeks.
From an equity market standpoint, do you think the ramifications and repercussions are well in the price because it has been such a long drawn process and now the deadline only gets shifted to August?
Hugh Johnson:
As far as the tariffs go, we have seen it a couple of times. We certainly saw that in 2018 & '19. I do not really worry about that. Keep in mind one other thing which is very important is that Trump is turning up the pressure on tariffs, trying to increase tariffs and also increasing the pressure on countries to increase the tariffs that they pay us. But the most important thing is that the US has just passed the big beautiful budget Act and there is going to be a $3.4 trillion deficit over 10 years and somebody has got to come up with the money.
One of the ways to come up with the money – and we see that in just about everything we hear from this administration – is through the revenues that are generated from tariffs. I have looked very hard at those revenues that we are getting from tariffs for the last three months when we have had tariffs and quite frankly, although there is fairly substantial revenues that the US will get from tariffs and maybe even higher revenues after he gets through with this current round, it is not going to be sufficient to offset the $3.4 trillion deficit over 10 years as a result of this so-called one big beautiful budget bill.
So, the US has to find those revenues to pay off that deficit. The other place, of course, is that the US will borrow the money from foreign governments. Foreign governments, foreign private and public investors have shown some reluctance to step up to the plate to buy US treasuries. So, maybe that will require higher interest rates. I do not know. But there is no question that a substantial part of the $3.4 trillion would not come from tariffs, but will have to be borrowed and borrowed again in part from foreign countries, private and public investors.
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If debt is only going to go higher because of the tax cuts and tariffs will have an impact on the economy, why are US equity markets at a record high? Shouldn't they be moving the other way?
Hugh Johnson:
I am not sure what you are saying, but if the question has to do with the revenues that are generated as a result of declining taxes, we will start to see some offset to the lost revenues as a result of the tax reductions. But the tax reductions will also lead to increased economic activity. The Congressional Budget Office calls it the dynamics of budgets. So, we are going to see some offset, some tradeoffs there, some improvement because of increased economic activity. I think that is what you are getting at.
And if that is what you are getting at, both the Congressional Budget Office and myself will agree that we will get some revenues which will offset that $3.4 trillion deficit, but not enough to make a difference. Again, it is going to be funds coming in from collections on tariffs and secondly, borrowing the money in the credit markets from both domestic US investors and public and private foreign investors, is where the money is going to come from.