Donald Trump has a talent for attracting attention, but even so, the events since Liberation Day have been unusually dramatic and consequential. After Trump used emergency powers to impose a universal tariff and even higher duties on America’s top trading partners, the stock market plunged. At one point, the S&P 500 was down 14 percent.
Needless to say, many welcomed Trump’s Wednesday announcement that he would pause most of the tariffs for 90 days and focus his ire on China. Wall Street usually reacts faster than the rest of the economy to economic news, so it felt the greatest immediate relief. But Trump paused the tariffs less because of the stock market than because of an emerging danger to one of America’s greatest national assets. In fact, this asset is one of the reasons the United States became a superpower and should remind Trump how he can keep that status.
The stock market tickers are highly visible, and Trump often touted them during his first term as they went up and up, but they only represent one part of American finances. Normally, U.S. government bonds are among the safest assets available and are thus one of the bedrocks of the American and global economy. This week, some tremors nearly turned into an earthquake.
Tuesday night, bondholders located primarily in allied nations began to question the health of the American economy, and as they offloaded their holdings, the bond market went haywire. As Trump said shortly after announcing the tariff pause, "I saw last night where people were getting a little queasy." So he decided to negotiate with the countries that wanted to make a deal and, in the meantime, to accelerate the trade war with China.
The United States became a superpower in large part because at key points, policymakers paid careful attention to the major economic and political forces shaping this week’s major events. The loudest boosters of Wall Street and Main Street often don’t like each other much, but the country has flourished when American leaders get them to work together.
Alexander Hamilton’s master plan for turning the United States into a superpower largely depended on finance. He saw that Great Britain could afford a world-beating navy because it reliably paid off its debts and used government credit to turbocharge its economy, and he wanted the Americans to follow suit. At the time, Britain was in the early stages of a quarter century of nearly continuous warfare with France that it ultimately won, even though at one point Napoleon controlled nearly all of Europe.
Hamilton’s ideas were never universally popular. His great rival, Thomas Jefferson, and later populists like Andrew Jackson hated the idea of a government-backed Bank of the United States, and they undid Hamilton’s bank and its successor. As they saw it, mixing government and finance was a great recipe for corruption and tended to benefit their political rivals too. Lincoln figured out how to merge the populists and the financiers, but even so much of the American heartland seethed at the fat cats.
Hamilton’s strategy paid off during World War II. Germany constantly had to pause and then restart its war preparations because of its dysfunctional finances, and Britain lost its empire because London buckled under the war’s strain. By contrast, the Americans massively expanded their military, equipped their allies, and still emerged from the war in good shape. American financiers also helped build an international order that Washington used to win the Cold War.
Trump and his team believe the country cannot afford the post-Cold War system any longer. They think it’s good that companies all over the world conduct their business in dollars, but they want their governments to pay for that privilege. And Wall Street doesn’t always make good decisions. For example, some funds made a killing building up China’s manufacturing sector, but in the process, they enriched a Communist country and helped turn it into a superpower.
An influential part of the Trump coalition takes that critique too far and cheers on the stock market rout. As they see it, what’s bad for Wall Street is good for Main Street. They seem to believe there are all sorts of companies itching to build expensive new factories without needing to borrow money or sell stock.
Trump’s goal—reversing decades of economic policy—is an ambitious one that will incur significant costs. Even just a trade war with China will likely hurt everyone from Walmart shoppers to Big Pharma. To succeed, he will need to balance the anti-Wall Street part of his party with the need to maintain financial dominance. It’s not an easy task, but the country thrives most when it draws the best from both camps.