Ms. Art of the Deal

In the early years, my wife and I took a trip to some Caribbean island and she had to negotiate with a merchant in a marketplace. I don’t remember what the item was. But it went something like: the merchant wanted $20, my wife bid $7, the merchant replied $15, and then, my wife…

Bid $5! Advertently or inadvertently?!? The shock on the merchant’s face and my internal laughter was memorable. We ended up buying the item for some price that seemed reasonable. Who knew that I had married Ms. Art of the Deal? Putting something on the table that everyone assumes would be a limit and then breaking that limit in a later round of bargaining, is not something that is often seen. I discuss trade implications this week, but that Trump maneuver was the highlight of a very busy week in news:

· Trump pulled a “Mrs. CA” and for some countries jacked up the tariffs above the April 2 table (which were supposedly the maximum tariff possible). Most notably, Brazil got 50% (from the 10% max on the April 2 table) and the EU got 30% (from the 20% max). For good measure, our USMCA partners, Canada and Mexico are being threatened with 35% and 30% tariffs respectively.

· At the same time, Trump TACOed the deadline to August 1 – the date when the unilateral tariff rates would go into effect. Maybe this is why the markets seemed to have a muted reaction. He did say no extensions this time. But you expect him to say that, regardless of whether it is true, so there is no new information here. Given how much news we had, the yawn from the interest rate market was almost as noticeable as the news. But tell me we haven’t seen: (1) deadlines getting extended (TACO!), and (2) Trump making loud noises during negotiations in the past. Or maybe the markets are in disbelief, like that Caribbean merchant, and are thinking about what all this means. We’ll find out early next week.

· Vietnam said they never agreed to the 20% agreement. They were apparently trying to reach an agreement on something closer to 10-15%. So Trump decided to make a crazy lying pattern-bargaining example out of Vietnam (who were assessed a max 46% on April2), at 20%?!? I would be lying if I said I know what is going on in Trump’s head. But the choice of Vietnam to make a deal example out of is curious.

· If Trump was going to use the media to push someone into getting that last few percentage points towards a deal, I would probably pick the country that was the closest. So the fact that a 46% country was offering 10-15%, and they objected to 20% is kind of sad. By pattern-bargaining logic, this was the best deal Trump had out there! I get why Trump is annoyed.

· I’m really not sure how countries can make a serious deal, given Trump keeps finding new tariffs, like the 50% copper tariffs and the 200% pharma tariffs he announced last week. I’d be surprised if at some point he didn’t put on rare-earth tariffs (once our domestic production gets going), more substantial airline tariffs (lord knows, Boeing needs some help), etc. The list of “critical” sectors we need to move domestically is not short.

· And I want to end the week in news with a few Fed notes. Warsh advertised his Fed Chair interest by saying rates should be lower. And Waller re-upped his candidacy by advocating for higher longer-end holdings, which is what Bessent seemed to be targeting. The Fed previously wanted to mimic Treasury holdings.

· There seems to be a push to get Powell to resign over the Fed renovations. I had no idea the Eccles Building renovation was $2.5 BILLION. Hindsight is 20/20, but it would have been better just to tear down the building and build a new building for like $250M. The Eccles Building is only 276K sq ft. $9K per sq feet is crazy for a renovation. But many government projects have these kinds of overruns. The CA high speed rail comes to mind.

· I don’t think the markets will take it well if Powell resigns. But I find it hard to believe a man who seems to be aware of his place in history (see his comments on Volcker and Burns) would want to be remembered for being bullied and not protecting Fed independence. That having been said, there are a lot of nut jobs out there and who knows what kinds of personal threats Powell may get?