This "Markets Weekly" video transcript, dated May 31st, analyzes recent market activity heavily influenced by trade talk news, particularly regarding potential tariffs. The speaker highlights that even though it was a shortened holiday trading week, it was packed with excitement revolving around trade news. The week began with positive news as the European Union and the US, specifically Preston Vandalion of the EU and "Preston Trump", agreed to delay imposing a 50% tariff initially threatened by Trump due to trade progress dissatisfaction. This delay extends until July 9th, providing more time for negotiations, and was met with market surges.
The markets also experienced a surge, although which eventually faded, following a US trade court ruling against Trump's reciprocal tariffs. However, the speaker emphasizes that this legal ruling will likely not prevent tariffs, asserting that trade talks are not progressing well, and the president might resort to drastic measures. He argues that the legal challenge is unlikely to succeed due to the precedent set by populist presidents in US history, such as Andrew Jackson and Franklin Delano Roosevelt, who defied court rulings when they were deemed to be obstructions to their political agendas and popular will.
He explains how Congress has delegated power over tariffs to the president, who can employ various tools like Section 232 tariffs (based on studies of foreign trade behavior) or declare a national emergency under AIPA to impose tariffs. Although legal challenges have emerged against reciprocal tariffs, the speaker dismisses their potential to derail Trump's trade policy, arguing that viewing the situation through historical lens is important. He states that legal challenges are not going to work in an era of populism.
The speaker draws parallels between Trump and past populist presidents like Andrew Jackson, who defied the Supreme Court regarding Native American land rights (Trail of Tears), and Franklin Delano Roosevelt, who challenged the Supreme Court by trying to pack the court with more judges when the Supreme Court did not initially agree with his actions and plans to redistribute wealth. These presidents, despite facing legal challenges, ultimately prevailed because of their strong public support and willingness to challenge established institutions. The speaker argues that Trump, like these figures, is operating within a context of weakened institutions and enjoys enough popular support to disregard legal obstacles.
The speaker also addresses the status of trade talks with China. He cites Treasury Secretary Mnuchin's admission that talks are "a bit stalled" as a significant red flag, especially given the consistent positivity usually presented by administration officials. Furthermore, Trump's frustration expressed via Twitter and new regulations targeting Chinese tech mergers and student visas signal deepening tensions.
The speaker then introduces the concept of the "taco trade," which stands for "Trump always chickens out". This refers to the perception that Trump often backs down from his tariff threats, a view that analysts are beginning to embrace, with the market anticipating the "backing down".
The speaker concludes that the convergence of court resistance, pushback from trade partners, and a perceived humiliation might compel Trump to take decisive action to demonstrate resolve and avoid being seen as a "chicken". He believes that the recent headlines, and that next week will probably be the same, indicating an ongoing period of uncertainty and potential volatility driven by trade-related developments.