Financial markets ignore the lack of clarity from the Trump administration over tariffs, though corporate America feels frustrated at the lack of direction. Mohamed El-Erian – Chief Economic Adviser at Allianz – explains what happens next.

Washington

The Trump administration's announcement of new tariffs on 14 countries has led to frustration among corporate leaders, who are concerned about the lack of clarity regarding future trade policy. This uncertainty is making it difficult for businesses to make long-term investment decisions, particularly regarding supply chains and factory locations. 

Despite these concerns, financial markets have shown little reaction, with many investors adopting a wait-and-see approach. Economists note that other factors, such as recent fiscal stimulus measures and changes within the Federal Reserve, may have a more significant impact on the economy in the longer term.

Trump announces new tariffs on 14 countries

A month or so ago, you said tariffs have put American exceptionalism on pause, and you warned about the further negative effect of a prolonged trade war. Is that still your view, sir? Explain. So if you look at what's happening from the eyes of corporate America, and remember, it is the corporate side that has led this exceptionalism, there is frustration because it's not clear to them how these tariffs will settle. And until they have some notion of how the tariffs will settle, they cannot make long-term investment decisions about supply chains, about where to locate factories. So there is frustration there. The financial markets are rather calm. The reaction compared to April is very muted because there's a mix of views in the marketplace Becky. One says we get extension after extension, so don't worry. Another one said we'll have trade deals. And the third one says we're going to get used to it, so let's not worry. So there's this contrast between corporate America, frustration that we don't have clarity, and the financial markets where they are happy to live with this lack of clarity. Isn't that fascinating? And that was just as I was coming to you, it was going through my mind. The chaos in the stock, bond and currency markets back at the beginning of April is not being reflected as we move through this period of time. And it's almost as if either people have said, look, it's going to be all right. It's the art of the deal. He'll get this done. It will be all right. All people, frankly, are blindsided at this point and simply don't know what to do. You write about data from the Fed and comments from Fed officials potentially impacting tariff outcomes. Can you just explain what our viewers might be watching for here and how closely Donald Trump is watching all of this? Very closely. So we spoke about the market view. We spoke about the corporate view. Then there's a third view, the economists. And the economists are basically saying, don't focus too much on the tariff because there's two other things happening that may be more important. One is let's not forget the big, beautiful bill that was passed last week, because that is a significant, significant fiscal stimulus. So that means deficits in the six to seven percent range as far as you can see into the future, Becky. We've never had this situation before, but it is a significant stimulus. And there's also what's happening on the Fed. The Fed is getting increasingly politicized ahead of the change in the chair. And there's this notion that there's slow fiscal dominance. That's a word you don't hear in developed countries. You hear in developing countries, this notion that the Fed will have to start worrying about the debt and what its interest rates do to debt payments. So the economists are saying, yes, tariffs are important, but there's these other things going on that may prove to be more important over the longer term.

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