Trump or how to play with the recession

Fear has taken hold in the stock markets. The declines experienced by the indexes, which began on Thursday in the US and have spread across the globe, reveal that no one expected US President Donald Trump to dare to play with fire in a manner that has little to do with economic rationality. The day after the delirious announcement of tariffs by the leader of the world's leading power, investors, far from calming down, have become even more nervous. And we'll see if Monday continues a situation that, in the worst-case scenario, would turn into panic.

Contributing to this climate of tension is not only the fact that China has responded to Trump in kind, announcing 34% tariffs, but also the warnings that this battle, provoked by a strategy that no one but a Trump supporter or collaborator can buy, will be protracted. The European Union, if it manages to overcome national interests to defend the collective, could join them. But there are other elements that arouse fears on the stock exchanges, which, as has been known since their inception, have a tendency to overreact, both in times of positive news or rumors (euphoria) and in times of negative news (panic).

And one of them has to do with a word that was considered banished for a good while and is now beginning to gain prominence thanks to Trump's ill-timed and arbitrary decision: recessionIt's a situation in which the economy or the wealth generated in countries, instead of growing, actually declines. It's a possibility that has already begun to be discussed at the highest global levels, such as the International Monetary Fund (IMF).

Federal Reserve Chairman Jerome Powell stated in a speech that the economic effects of tariffs will be "significantly greater" than expected, and that this will translate into lower growth and higher inflation. This is not a reassuring message, because it raises fears that a period of interest rate hikes is imminent if Trump does not change a policy that, he explained, was supposed to bring greater abundance and wealth to the country. This increase would mean more expensive credit, hence the anxiety.

From the time Trump took office on January 20th until the days before his bizarre announcement of a universal 10% tariff on all imports, increased according to a highly questionable formula, the US stock markets were the only ones to lose. European stock markets were enjoying a sweet moment that has now changed, infected by global nervousness and a climate of uncertainty that does nothing to calm the mood.

Looking ahead to possible twists and turns, it's important to keep in mind that many Americans have their savings and pensions in markets under intense stress from Trump himself. The US president's fellow citizens, many of whom voted for him last November, could be affected by two explosive variables: an increase in general prices—which the current president attributed to his predecessor, Joe Biden—due to the tariffs and, at the same time, a loss in the value of savings. A cocktail that could blow up in Trump's face.