John Maynard Keynes once wisely remarked that “markets can remain irrational longer than you can remain solvent.” This timeless observation reminds us that even if you have correctly predicted where the stock market is headed, the market doesn’t necessarily adhere to your anticipated path or timeline.
In the wake of the U.S. setting hefty tariffs on countries worldwide, many Americans are discovering a new twist to Keynes’ notion: Donald Trump can sustain irrationality longer than one might stay financially afloat.
The crux of the issue lies in President Trump’s erratic stance on trade. Over the weekend, he repeated claims that view any trade deficit as a “loss” necessitating redress. Trump sees trade deficits as “subsidies” America supposedly pays to other nations. His calculations dismiss the substantial U.S. trade surpluses in services, amounting to about $250 billion annually. He seems oblivious to how trade deficits connect to foreign investments, ignoring how dollars sent abroad often find their way back to the U.S. He also fails to understand that tariffs are taxes levied on domestic importers, not foreign manufacturers.
As many have observed, Trump’s staunch mercantilism is one of the few policy positions he has consistently championed throughout his life. Interestingly, his administration often defends his stance by asserting that “Trump’s been talking about this his whole life.” Commerce Secretary Howard Lutnick echoed this sentiment, stating in multiple interviews, “Donald Trump’s been talking about this for 35 years.” The suggestion here is that Trump’s steadfastness implies correctness and that he holds a mandate to proceed with his plans. As Lutnick declared on CNN last week, everyone should just sit back and let Trump manage the global economy.
The first claim is downright absurd. If someone like Bernie Sanders were trying to implement socialist healthcare or a protectionist trade policy, the fact that he’s been consistently wrong in his views wouldn’t compel his critics to suddenly support him simply for being consistent.
The second argument, while equally silly, has a superficial ring of truth. Trump won votes partly by openly professing his affection for tariffs—what he calls the “most beautiful word in the world.” During his second term, no one in his circle or the Republican Party seems able to sway him from his path, as he believes he has the mandate to act as he pleases.
Back in February, I welcomed the fact that, unlike his advisors, the financial markets wouldn’t endorse Trump’s misguided penchant for protectionism. Though capital markets are valuable for numerous reasons, one of their often overlooked—but crucial—roles is that they don’t distort the truth. While they may occasionally appear “wrong” as noted by Keynes, investors prioritize financial realities over partisan biases. Initially, markets have strongly disfavored Trump’s trade policies, contributing to a substantial loss of around $11 trillion since he took office.
Like many, I hoped Trump would heed the markets more than his sycophantic entourage. Sadly, that hasn’t materialized. Yet, there’s a silver lining. The markets aren’t just indicating that Trump’s policies are detrimental to stock prices or corporate earnings; they’re signaling to other politicians and policymakers, “Don’t expect us to bail you out from Trump’s irrationality.”
It’s dawning on some Republicans who previously entertained the ridiculous notion of Trump’s unilateral and unreasonable command over the global economy, that the Constitution assigns Congress authority over taxes and tariffs, not the president. Over time, Congress ceded this authority to the president for both legitimate and dubious reasons. What was once defensible is now unacceptable, as Trump grossly exploits this power under pretenses of emergency, a crisis of his own making. Furthermore, Republicans are beginning to grasp that their political stability might not outlast Trump’s irrational decisions.
Key Republican figures in Congress, including Senators Chuck Grassley of Iowa and Mitch McConnell of Kentucky, are finally making moves to reclaim their legislative power, with leading conservatives challenging Trump’s trade authority in court. Predictably, Trump has threatened to veto any such legislation.
This situation should never have reached this point, but it’s encouraging to see Republicans beginning to listen to the markets over Donald Trump.
