President Donald Trump’s administration has once again shown a firm stance to continue maintaining trade tariffs despite legal pressure, causing global financial markets to become restless again.
US Treasury Secretary Scott Bessent confirmed that trade negotiations with China have now completely stalled. At the same time, the White House is reportedly looking for alternative legal avenues to maintain their tough trade approach even though courts have begun to question its legal basis.
Among the measures being considered is the re-use of an old provision in the 1974 Trade Act, which allows the government to impose tariffs of up to 15% for 150 days to address trade imbalances. This is seen as Trump’s attempt to ‘avoid’ court obstacles and continue his economic protectionist agenda.
Markets Worried, Risk Sentiment Still Weak
US and European stock futures have been seen moving slowly since Thursday, after experiencing small declines earlier. While the market reaction was relatively calm, it hid the real concerns that were simmering, especially among investors increasingly frustrated by the uncertainty over US trade policy.
In currency markets, the US dollar strengthened slightly and came close to snapping a five-month losing streak last seen during the market crisis in 2020.
Uncertainty over the legality of the tariffs and diplomatic tensions with China are now the main obstacles to risk appetite. Many investors expect the crisis to be prolonged, with hopes for a short-term solution looking increasingly slim.
Bessent also hinted that any progress with Beijing may only be achieved if President Trump and President Xi Jinping themselves intervene, although for now, no formal meeting is scheduled.
He also revealed that recent high-level talks in Switzerland failed to produce any meaningful progress, although both sides withdrew their threat of tariffs that could reach 100% on selected goods.
Weakening Economy, Pressure on the Fed and the Dollar
Recent economic data shows the significant impact of trade protectionism on US economic growth. The revised first-quarter gross domestic product (GDP) report on Thursday showed the US economy contracted, driven by weaker household spending and stronger-than-expected trade pressures.
The threat of stagflation from the combination of slow growth and persistent price pressures is now becoming clearer. While President Trump has been vocal in criticizing Federal Reserve Chairman Jerome Powell for his reluctance to cut interest rates, the central bank remains cautious.
Dallas Fed President Lorie Logan stressed that any easing would only be considered if there were clearer signals from inflation and labor market data.
SARACEN MARKETS View: Risks Remain High, Uncertainty Prolonged
The Trump administration’s reluctance to budge on tariffs despite legal pressure and economic weakness has made the market situation more complicated. As long as the legal questions are unresolved and trade talks stall, sentiment towards the US dollar remains weak and pressure on global risk assets is expected to continue.
Investors should also not underestimate the White House’s determination to find ‘legal shortcuts’ to maintain its trade policy. The risk of unilateral action by the US President through extraordinary legal channels adds another layer of geopolitical uncertainty.
For now, the direction of the market remains uncertain. A solution will only emerge when either the courts make a final decision or when the two world powers, the US and China, return to the table in earnest. Until then, global markets are expected to remain cautious with high levels of volatility.
