Donald Trump has shown he has a low pain threshold. The U.S. president seems happy to bully those he considers weak. He does not seem so relaxed when there is a strong counter-reaction, especially from financial markets.
This is mildly good news for investors worried that Trump may create havoc both at home and abroad. Although he may still cause much damage to the economy and the rule of law in the United States and further afield, there are some checks to his power.
The U.S. president has twice seemed to cave in the face of tumbling markets. The first was when he put his so-called reciprocal tariffs on ice for 90-days. Trump said he switched course because bond markets were “yippy”.
The second was when he said last week he had no plans to fire Jerome Powell. Only days earlier the president had flirted with the idea on social media, and said that the chair of the independent Federal Reserve would be gone “real fast” if he wanted him out. Trump has been calling on Powell to cut interest rates, which the central bank is in no rush to do because inflation is above target and likely to rise as a result of tariffs.
The fall in the dollar, U.S. equities and bonds seemingly provoked Trump’s change of heart. Investors, who hate governments interfering in central banks’ conduct of monetary policy, started to “sell America”.
There are many reasons why falling markets are bad for Trump. For a start, he has long boasted about how he is good for equities. Many citizens, who put their retirement savings into the U.S. stock market, were also losing money.
A line chart showing the wild ride of the S&P 500 Index since Trump’s election win, ending down 5% as of April 24, 2025
Thomson ReutersThe S&P 500’s wild ride since Trump’s April 2 tariff announcement
Meanwhile, if investors sell U.S. government bonds, Trump could struggle to fund the Treasury’s deficit, which is set to reach 6.5% of economic output this year, according to the International Monetary Fund. He may also find it harder to cut taxes, one of his main goals, as that would require Washington to issue trillions of dollars of extra debt.
Trump blinks
Trump also seems to be having second thoughts about the trade war he launched on China. Instead of backing down, Beijing hit back hard. That led to several rounds of tit-for-tat tariffs.
The U.S. president said last week he expects the tariffs on Chinese goods, currently up to 145%, to come down “substantially”. Trump’s softer language came the day after meeting the bosses of big retailers, including Walmart, which could pass through the impact of higher tariffs to consumers. While many U.S. voters do not own shares, inflation hits everybody.
Beijing’s counter-tariffs could also provoke a U.S. recession, leading American workers to lose their jobs. Some Chinese buyers are already declining to take delivery of Boeing jets.
Trump prides himself on being good a pro-growth president. But only 37% of Americans now approve of his running of the economy, according to a /Ipsos poll.
Some Republicans in Congress are also questioning his tariff policies. A proposed law forcing him to ask Congress’s approval before imposing tariffs will get nowhere because he has threatened to veto it. But legal challenges to his right to tax imports on a whim might stop him.
Trump said Beijing panicked in its rapid response to his tariffs. But it is the author of the “Art of the Deal” who is now blinking. Chinese President Xi Jinping, who runs an autocratic regime, seems to have a higher tolerance for pain. If there is a deal to cut tariffs, it is likely to favour Beijing.
War on three fronts
Military strategists often advise against fighting multiple enemies simultaneously. Trump has launched a war on three fronts – against China, other trading partners including allies, and those who oppose him at home. Ruling mostly through decree, he has attacked universities, law firms and government departments and agencies.
The U.S. president initially seemed unstoppable with his shock and awe tactics. But he is running into increasing resistance on the home front. His opponents’ main strategy has been to argue that he does not have the right to do what he is doing – because it is against the law or the constitution or because he is usurping powers that belong to Congress.
Tesla boss Elon Musk’s attempts to slash parts of the state, as head of the Department of Government Efficiency, have run into legal problems and masses of criticism. The world’s richest man last week announced he would cut back his time helping Trump to focus on his ailing car business.
Several leading law firms, including Perkins Coie and WilmerHale, are challenging Trump’s attempt to bully them. Meanwhile, Harvard University is suing to prevent the administration from freezing $2.3 billion in government funds after the Boston school rejected a list of demands it said would undermine its independence. Here the U.S. president is going against public opinion: only 28% of Americans think he should withhold money from universities he disagrees with, according to a /Ipsos poll.
Trump’s assault against immigrants is more popular: 45% favour his immigration policies. But the public may not back his administration if it breaks the law in the process: 83% think he should obey court orders he disagrees with.
So far, the White House has been trying to avoid obeying the courts without stepping over the line into open defiance. But Trump will not be able to continue evasive action forever. Indeed, he may already have backed down once. After the Supreme Court temporarily blocked the deportation of some Venezuelan migrants, several men said a bus carrying them to an airport took them back to their detention centre instead, according to a TikTok post that Reuters reported but did not verify.
Defiance of the Supreme Court would trigger a constitutional crisis. Investors could take fright, worrying that the United States was becoming a tyranny. That, again, might stop Trump, given his apparently low financial pain threshold.
What is more, his Republican Party will have to face the voters again in next year’s mid-term elections. That, too, could prove a check on his power. In the meantime, the markets, the economy and the courts are the best albeit imperfect guardrails.
Source: Reuters
