Blain’s Morning Porridge April 9^th 2025: Trump Shuts the Door on China, Global Trade and Common Sense

“My bad. I assumed economic rationality would be paramount.”

Global Trade is enormously complex. Trump has put 104% tariffs on China – which will directly impact US consumers. Shutting the door on global trade will inevitably trigger consequences. The biggest risk is to the bond market – and a stressed Treasury market when the US has $15 trillion to refinance in next 20 months is a really, really bad idea.

Welcome to Day 78 of The Nightmare on Pennsylvania Avenue. This morning’s quote is from Bill Ackman – a leading Trump supporter.. till now I guess.

You really could not make it up if you tried…. It’s absolutely unmissable… I’ve not been this energised and concerned since the market tanked over Covid, or the adrenaline fuelled rushes as the world threatened to meltdown during the Global Financial Crisis in 2007/08. Now the rumours are starting to fly of institutions in trouble, dissent in Trump’s ranks as Musk calls Trade advisor Peter Navarro a “moron” (promotion then?), and policy shifts that move markets for moments before the next flash reverses them.

Be amused, but don’t forget one of my key market mantras is: “In Bonds There is Truth.” Bear that in mind. The truth will out. The US 10-year Treasury has spiked from 4% to 4.43% over just a few days – ask yourself what that might just mean when everyone is warning about recession? Speak not the word… but it is Stagflation! If that happens…. Where will bonds stop? No wonder liquidity is drying up.

What’s really interesting about this global market train-wreck in motion is listening to all the differing and opposing views across markets.

• Some folk listen – they are trying to figure it out.
• Other folk opine (like myself) about the madness and incoherence of it all – although to be fair, I do have an investment plan. (It’s very simple.)
• Others seek to justify it, and there is a quite sophisticated stream of consciousness about the masterplan of creative destruction necessary to rejig, rescue and rebuild the US economy…

If that’s really the plan… Genius. If the strategy is to destroy the village in order to save it – then it appears to be working.

I am being told (by the usual suspects) the Tariff Plan is working – just look at the number of leaders making their way to Washington to “make a deal” with Trump and get their tariffs reset to zero. That’s Trump’s offramp – he will be able to show MAGA voters how much global leaders are prepared to kow-tow, and therefore, his success. The reality is no one is doing a deal with Trump – they will do the same thing global businesses are going to do; promise, delay and wait for the next US administration to take office. By which time the global economy will have reshaped itself – with a large USA hole in it.

I would argue today’s Trump Tantrum is a consequence of how the Global Financial Crisis that began in 2007 was addressed. Donald Trump’s populist success has largely been fuelled by the optics of inequality. The fact the rich got richer while the MAGA poor have remained poor was driven by the wealth effects stemming from financial asset inflation (stock and bond rallies) which were fuelled by abundant liquidity from QE and artificially low interest rates. These didn’t trigger the general inflation monetarists predicted, because the growth of China as the cheapest manufacturer of everything exported deflation around the globe.

Distorted interest rates have consequences. Payback for 2 decades of the financialisation of what was (in reality) a stagnating Western economy are coming due. While stock markets soared, actual real economic growth was minimal across most of the west – perversely the US was the top performing democratic economy! China and the rest of the world grew swiftly on the back of trade – not because they stole jobs and markets, but because they met demand – deepening the complex supply-chain based circulation system of the global economy. US banks and financiers got rich on the growth!

That’s the global reality of what Trump now seeks to destroy – which shows naivety at best.

If the US really could re-onshore production – where will the workers come from? Who wants to make $1 dresses? It will require robotisation at massive scale – which is an investment outlay broke America can only afford if Corporates are making the profits to do so – which they won’t, because no one else will be buying American goods…..  Doh! And this is no longer an easy credit market.

Just to make it even more interesting, Trump has now slammed the door shut on China with 104% tariffs. If you guess that’s the equivalent of a full cardiac event, you guess right. You can argue as much as you care to over the effectiveness and outcomes of trade war, but I guarantee you stopping trade between the two largest economies has inevitable consequences, and the most likely are inflation and global recession = stagflation. (Lots of people are comparing this to 1929 in terms of how the market is going to crash – I disagree. This might be 1929 with a touch of 1979-85 thrown in!)

And when global trade stops, that’s when this crisis could get really random…

Every previous crisis I’ve seen – and there have been a few – follows a similar path. (I experienced my first real market tumble, the great Perpetual FRN crash, way back in 1986.) Crashes share many things in common – usually they result from the unforeseen consequences of something everyone thought was a great idea right up the moment it wasn’t. Then the authorities rally round and solve it with emergency rescues and policy shifts.

This crisis is different. It is picking up momentum because the human actors driving it are so convinced of their rightness. Trump is apparently unconcerned by market instability. The US Senate and Congressional Republicans have abrogated their duty to the American people of providing a balance to the President. They are so beholden to him, I doubt they will wake up and smell the b*llsh*t, thus Trump and his cabinet of minions will continue to drive the global economy into a maelstrom – who else is going to stop them?

At some stage the global financial authorities – the central banks – are going to have to step in. Usually, they do it in conjunction and partnership with governments. Within the next few weeks the degree to which Trump and the Fed are non-aligned will become frightenly apparent. As Trump threatens to replace him and the independence of the Fed is compromised – then… forget solving a crisis. Look at what happens when you pour petrol on a blazing conflaguration!

Lots of folk tell me I am absolutely wrong about a near-term threat to the dollar or the mighty Treasury market. They say there is no chance the dollar’s role as the de-facto medium of global exchange will change, or the Treasury as the most liquid and default safe-haven asset could be replaced. Tell me that again after Trump tries to sack Jay Powell.

There are none so deaf as those who will not listen, and none so blind as those who will not see. That includes those who don’t recognise the potential for a complete polarity shift in current FX and Rates markets – from growing rejection of the dollar economy and Treasury safe haven status. I suggest they take their heads out the sand.

The basis of global trade has now changed and that means every assumption around it is questionable. China is well on the way to introducing the digital RMB in Asia. The Middle East cares not for the dollar any longer. Nations that feel aggrieved at Trump’s America First policies, and how the USA has dumped alliances overnight will no longer consider themselves dollar-bound.

And, if the US is about to enter a long-term bear market in bonds as stocks tumble, inflation rises and recession bites – who would want to be a Treasury buyer? Especially with some $15 trillion of US debt due to be refunded the next 20 months.

This time will be different…. It seldom is.. but when it is.. It will be very different.

Out of time and back to the day job..

Bill Blain

Author Morning Porridge

Founder Windshift Capital

Partner Shard Capital