Summary
⚈ Trade war seen as massive tax hike hurting U.S. growth and investor confidence
⚈ Fed unlikely to cut rates enough to offset economic damage or stop decline
Paul Tudor Jones, a billionaire hedge fund manager who shot to fame during the 1987 stock market crash, has been highly critical of President Donald Trump’s trade war and opined in a May 6 interview that an equity crash can no longer be avoided.
According to Jones, even if the administration cuts its tariffs on China to 40% or 50% – a contingency the manager sees as likely – stocks have not yet found the low of the deteriorating macroeconomic situation and are bound to continue the downtrend.
For me, it’s pretty clear. You have Trump who’s locked in on tariffs. You have the Fed who’s locked in on not cutting rates. That’s not good for the stock market. We’ll probably go down to new lows, even when Trump dials back China to 50%.
President Trump’s trade policy toward China has been making headlines and driving prices for months as tariffs have been steadily rising to their current historic highs at 145%, and as something of a back-and-forth of the U.S. claiming negotiations are going well and the People’s Republic denying such claims has emerged.
Could a Trump trade ceasefire be on the horizon?
By press time on May 7, Jones’ prediction of a levy reduction appears somewhat closer to fruition as U.S. Secretary of the Treasury Scott Bessent and Trade Representative Jamieson Greer are set to meet Chinese officials in Switzerland before May 11.
Paul Tudor Jones’ grim prediction is based on his opinion that the ongoing tariff situation amounts to the largest tax increase since the 1960s and is bound to diminish the growth of the U.S. economy.
He’ll dial it back to 50% or 40%, whatever. Even when he does that, it’d be the largest tax increases since the ’60s. So you can kind of take 2%, 3% off growth.
Critics of the trade war have repeatedly pointed out that the additional duties amount to a regressive sales tax imposed upon all American consumers, as buyers typically cover the additional costs through price increases.
The Trump administration’s aggressive response to Amazon’s (NASDAQ: AMZN) rumored plan to show how much of a product’s price tag accounts for the tariffs has arguably confirmed the sales tax view.
Why Bessent is unlikely to make a breakthrough in Switzerland
Bessent’s diplomatic engagement in Switzerland does little to guarantee that the overall situation will improve. Chinese officials have been adamant about their willingness to fight as long as necessary and their determination not to back down.
They have also demanded that the U.S. abandon its new trade policy, thus diminishing the odds of an immediate breakthrough and increasing the odds of Jones’ forecast of a tariff reduction to approximately 50%, which could be used as a show of good faith if the politicians in the People’s Republic refuse to budge.
Could the Fed prevent a crash?
Some insight into which direction the talks might move and whether Paul Tudor Jones’ dire prediction is likely might be gleaned as soon as the evening of May 7. On Monday and Tuesday, the Federal Reserve is holding its regular Federal Open Market Committee (FOMC) meeting, meaning that a decision on interest rates is imminent.
The billionaire hedge fund manager has previously opined that America’s central bank could stem the downward tide by turning exceptionally dovish and offering significant cuts.
Unless they got really dovish and really, really cut, you’re probably going to go to new lows.
However, such a move remains relatively unlikely as the Fed has been shadowed by controversy due to the impact of the current high rates and the potential effects of cuts in the prevailing inflation climate.
How low will U.S. stocks go in the ongoing trade war?
Although Paul Tudor Jones refrained from an exact prediction of the lows, other prominent analysts have weighed in.
Finance author Harry Dent may be responsible for the darkest of forecasts. In April, he opined that the U.S. stock market is set to crash approximately 50% by the summer and 80% in an indeterminate yet uncomfortably near future.
According to Dent, American authorities have been using an arsenal of tools to artificially extend the bull market and prevent the cyclical recessions characteristic of capitalist economic systems. Due to this artificial extension, a major bubble has emerged and will, once it is burst by the 2025 instability, help a historic and long-lasting recession materialize.
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