Why Investors Seem Undeterred by the New Trump Tariffs

By
Joe Killer
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The increasing influence of Elon Musk in governmental affairs seems to be attracting investors to his businesses. For instance, banks have successfully sold most of the $12.5 billion in debt owed by X, his social media platform, to enthusiastic buyers. Investors appear to be wagering that the company’s future prospects are improving due to Musk’s significant governmental role.

This contrasts with the concerns of many who are skeptical of Musk — fearing he might leverage his considerable influence to provide direct advantages to companies such as SpaceX. It’s noteworthy that the intensified scrutiny surrounding Musk may have inadvertently cost Tesla a potential contract from the State Department we reported on Thursday. More details on that below.

Investors are largely overlooking President Trump’s latest trade-war declarations as stocks in China — a major focus of his tariff agenda — have rebounded, alongside a decline in the dollar.

This scenario unfolded just hours after Trump announced his long-anticipated plan for reciprocal tariffs against all trading partners. This plan, along with existing tariffs on steel and aluminum imports, could still disrupt global trade dynamics.

What’s going on? Investors seemed relieved by the lack of details in Trump’s latest executive order. Moreover, the measures won’t take effect until early April at the earliest, giving federal agencies time to assess how to tailor country-specific tariffs.

“Markets are currently interpreting the president’s stance as more lenient than confrontational,” wrote Paul Donovan, chief economist at UBS Global Wealth Management, in an investor note on Friday. “The delay presents an opportunity for potential agreements.”

Businesses and nations are responding accordingly. For example, French winemakers are increasing shipments to the U.S. ahead of any upcoming tariffs. To curry favor with Trump, Vietnam has committed to importing more U.S. farm products, while Taiwan and India have expressed a willingness to purchase additional American oil and liquefied natural gas.

During a news conference with Prime Minister Narendra Modi, Trump mentioned that he could not persuade India to reduce its high tariffs on U.S. goods. However, he added, “We’re simply going to match whatever you charge.”

Maros Sefcovic, the EU trade commissioner, intends to fly to Washington for discussions with Howard Lutnick, Trump’s commerce secretary nominee, potentially aiming for a negotiated deal. Meanwhile, the European Union is preparing counter-actions, as Sefcovic stated: “We must respond — it’s preferable to negotiate from a position of strength.”

Trump wants significant changes to global trade regulations. Typically, the U.S. establishes trade policies and tariff rates through international organizations like the World Trade Organization. However, the president has disrupted these protocols by issuing new demands and deadlines unilaterally, compelling nations to react quickly.

His administration has adopted a broad definition of trade barriers. Peter Navarro, the senior trade advisor to the president, criticized value-added taxes common in Europe as an “unfair” disadvantage for U.S. firms.

He has also expressed dismay over governmental subsidies to domestic industries and foreign exchange rates that harm the dollar — acknowledging that these factors are often beyond a nation’s control.

Trump might have further actions in mind. He is contemplating additional tariffs on car imports, with White House officials suggesting that Japan, India, and the EU could be in line for future tariff rounds.

However, tariffs could trigger inflation, which might alarm investors. Some economists predict these measures could lead to an approximate 2 percent increase in consumer prices. Trump himself acknowledged that tariffs could result in “slight short-term price hikes.”

The acting U.S. attorney in Manhattan resigns amid the Eric Adams case. Danielle Sassoon’s departure clarified uncertainty regarding whether she would comply with Justice Department directives to dismiss corruption charges against New York City’s mayor. (Later, five officials from the department’s public integrity section in Washington also resigned.) Sassoon’s resistance raises questions about the independence of Jay Clayton, Trump’s nominee for the Manhattan U.S. attorney’s office.

TikTok makes a comeback in the Apple and Google app stores. The app returned following assurances from the Justice Department to tech giants that they would not incur penalties for doing so, despite the law banning the Chinese-owned platform in the U.S., according to The Times. The status of TikTok’s potential sale to a U.S. entity — a demand from Trump — remains uncertain; many legal experts argue that the administration’s non-enforcement of the law is unconstitutional.

Beijing reportedly extends an invitation to DeepSeek’s CEO for a high-ranking tech meeting. Liang Wenfeng is expected to join President Xi Jinping, Alibaba co-founder Jack Ma, and others for a symposium next week, as reported by Bloomberg. This highlights DeepSeek’s growing significance for China’s ambitions in artificial intelligence and the improving relations between Beijing and Ma, who had previously faced scrutiny.

If you believed that Elon Musk’s creditors would struggle to recover the $12.5 billion in financing for his Twitter acquisition — now rebranded as X — think again.

On Thursday, banks successfully sold off $4.7 billion of X’s debt, exceeding the initially proposed $3 billion, driven by growing interest, according to DealBook’s Lauren Hirsch and The Times’s Joe Rennison and Kate Conger.

This high demand starkly contrasts the situation two years prior, when investors were hesitant to engage with X’s debt. Just two months ago, talks to purchase the debt involved a potential loss of 10 to 20 percent for banks, according to insights from an involved party.

The recent transaction marks the third instance of banks offloading X’s debt in recent weeks, after previously selling about $6.5 billion in two earlier rounds. Creditors still maintain approximately $1.3 billion, which may see further sales.

What has sparked this investor interest? Investors are wagering on X’s strengthening market performance — and Musk himself. The billionaire has emerged as a significant figure in Washington, boasting direct access to President Trump and securing billion-dollar government contracts for SpaceX.

There are still ongoing speculations about whether his companies might gain from his elevated influence.

X’s revenue surged by 40 percent last year following a dismal 2023, as per insights from sources familiar with the firm’s finances. More users are subscribing to X’s premium services, and there’s additional revenue stream from xAI, Musk’s artificial intelligence venture, which compensates X for data licenses, according to insider information. This growth comes after significant cost-cutting measures implemented by Musk, including an 80 percent reduction in workforce.

In an email sent to employees last month, Musk acknowledged stagnation in user growth, expressing, “We’re barely breaking even,” and urged for increased innovation and agility.

It seems his strategies may be showing results, as Brett Weitz, X’s head of content, indicated in an internal message from late January, “There appears to be more business coming in than we have seen in the past two years,” which was seen by The Times.

— Elisabeth Murdoch to her father, Rupert Murdoch, regarding his strategy (dubbed “Project Family Harmony”) aimed at diminishing her voting influence — and that of her siblings James and Prudence — in the family trust overseeing Murdoch’s media empire, which includes Fox News and The Wall Street Journal. The Times’s Jonathan Mahler and Jim Rutenberg referenced their article from over 3,000 pages of court documents. This is a worthwhile read.

The issue of lenders shutting down customer accounts based on alleged conservative beliefs has gained traction, particularly after President Trump condemned the CEOs of Bank of America and JPMorgan Chase for what he termed “debanking” last month.

This topic has followed banking executives to Capitol Hill.

“We don’t close accounts based on religious or political beliefs,” remarked Jamie Dimon of JPMorgan while entering a roundtable discussion with Senator Tim Scott, the Republican from South Carolina who leads the Senate Banking Committee, along with other banking leaders.

Following the meeting, Brian Moynihan of Bank of America, who was criticized by Trump at the World Economic Forum, stated, “We have 70 million customers, and we are happy to serve anyone.”

This issue extends beyond bank executives being questioned. In Senate hearings on Tuesday, Jay Powell, the Federal Reserve chair, expressed being “struck” by the numerous claims of individuals who said they faced banking service denials.

He stated that the central bank is “motivated to reevaluate” this matter, hinting at potential regulatory changes.

The issue of access to banking services isn’t exclusively a conservative concern. Senator Elizabeth Warren of Massachusetts, the senior Democrat on the Senate Banking Committee, highlighted it as a challenge affecting individuals across the political spectrum. She remarked, “Donald Trump pinpointed a genuine issue when he criticized Bank of America for its debanking actions.”

However, differing perspectives exist regarding the cause of the problem. Bank CEOs attribute the issue to, as they describe, a complex web of regulations. Dimon indicated on Thursday, “Essentially, yes,” indicating that regulations related to anti-money laundering and financial crime reporting are significant contributors:

The AML/Fincen regulations are extraordinarily complex, causing many to be excluded from the banking system due to companies’ fears of potential lawsuits or penalties if something goes wrong afterward — the impression of potential liabilities could reach a billion dollars.

Conversely, Senator Warren argued last week that banks are choosing shortcuts in their regulatory compliance, emphasizing that agencies like the Consumer Financial Protection Bureau have responsibilities in this area. (However, it should be noted that Trump’s administration and Musk’s cost-cutting initiatives have effectively stalled the CFPB.)

Deals

Politics, policy, and regulation

  • The State Department announced it has suspended a plan to procure $400 million in armored vehicles from Tesla. (AP)

  • Joe Gebbia, a co-founder of Airbnb and a close associate of Elon Musk, alongside being a Tesla board member, intends to join Musk’s government cost-cutting task force. (NYT)

Other noteworthy updates

  • Recent reports detail Melania Trump’s documentary film agreement with Amazon: the first lady’s earnings are projected to exceed $28 million, and her agent is negotiating for higher payouts from CEOs closely associated with the president. (WSJ)

  • “Where China’s Exports Begin: Inside the Vast Markets of Guangzhou” (NYT)

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