Wall Street sours on Donald Trump

Good morning and welcome to White House Watch! Join the FT’s Q&A tomorrow on how Donald Trump has changed the world order. You can pose your questions in the comments below this story. Today let’s get into:

• Wall Street’s Trump wake-up call

• China’s edge over the US

• Can Mark Carney take on Trump?

Wall Street made a mistake: its titans of finance and business didn’t believe that Donald Trump would really upend US economic policy.

During the campaign and transition, they were thrilled about the big tax cuts and lax antitrust enforcement Trump could bring. The price? Some tariffs. But they misread just how far the president would go [free to read].

He doesn’t care about rattling Wall Street the way he did during his first term. His escalating trade war has planted seeds of distrust and raised fears that financial modelling can’t predict what’s coming, more than a dozen investors and executives told the FT’s Antoine Gara, Amelia Pollard, James Fontanella-Khan and Eric Platt.

Investors and executives are now dealing with destabilised financial markets as the spectre of both higher inflation and a recession loom.

“We didn’t believe him. We assumed that someone in the administration that had an economic background would tell him that global tariffs were a bad idea,” said one Wall street executive. “We are in for a roller-coaster ride.”

But how could they get Trump so wrong? He made it clear he wanted to end decades of globalisation. During the campaign, he and those in his orbit continuously said they wouldn’t prioritise the wealthiest Americans with their policies.

As Oaktree Capital co-founder Howard Marks put it:

Investing is largely based on the assumption the future will look like the past and that assumption appears to be more tenuous than usual.

Given our state of ignorance and all we don’t know, [investing now] is like betting on the outcome of the Super Bowl when you don’t know which teams are playing or who any of their players are.

All the uncertainty is making things gloomy. Risky corporate borrowers have been shut out of the bond market since the tariff blitz, threatening a tentative dealmaking rebound.

But apparently there’s still hope on Wall Street: Goldman Sachs chief executive David Solomon is banking on Trump listening to companies in the end.

The latest headlines

• China’s centralised authoritarian government, diversified markets and control of strategic materials gives it negotiating power against Washington — if it can bear the pain.

• The US has announced national security probes that could lead to tariffs on chips and pharmaceuticals in a sharp escalation of Trump’s trade war.

• Despite Meta chief Mark Zuckerberg’s efforts to curry favour with Trump, a blockbuster trial is under way over the company’s acquisitions of Instagram and WhatsApp.

• El Salvador’s President Nayib Bukele says he will not repatriate a man wrongly deported to his country from the US in a move that could complicate the stand-off between Trump and the American judiciary.

• The Trump administration said it would freeze more than $2.2bn in funding for Harvard University, after it rejected White House demands to “control” its community. 

What we’re hearing

Canadian Prime Minister Mark Carney is positioning himself as the wartime leader his country needs to battle Trump.

“We are going to fight, and we are fighting the Americans,” he said at a recent rally as he campaigned to keep the premiership in an upcoming snap election.

And it’s working for him. He’s resuscitating a Liberal party that was dead on arrival under ex-prime minister Justin Trudeau. Of course, that was before Trump began attacking Canada and talking about annexing vital US trading partners.

Polls show Carney, a former central banker and Wall Street veteran, has a solid lead over his Conservative party rival, Pierre Poilievre. Carney is harnessing his experience running the Bank of Canada and Bank of England during periods of economic distress (the 2008 financial crisis and Brexit), to convince Canadians he’s the one to take on Trump’s trade chaos.

Hank Paulson, the Goldman boss who was George W Bush’s Treasury secretary, told the FT’s Ilya Gridneff, Harriet Agnew and Antoine Gara, he “first became a fan” of Carney “during the 2008 financial crisis when his judgments were spot on”.

Meanwhile, he’s also trying to redefine his reputation as “Carney the Davos man” and convey he’s ready to jump into the ring with the US president.

“He’s kind of charming, but don’t fuck with him,” said Nigel Topping, the UK climate diplomat who worked with Carney.

Viewpoints

• Yesterday’s Oval Office drama starring Trump and Bukele offered a civics lesson to the world: the US government pays greater respect to a foreign strongman than its own Supreme Court, writes Edward Luce.

• The US under Trump is an emerging market, argues Rana Foroohar.

• The White House has miscalculated the balance of power by starting a trade war with Xi’s China, says Gideon Rachman.

• Trump’s administration should look to Andy Grove, the late chief executive of Intel, for lessons on how to build a tariff policy that truly benefits Americans, says Silicon Valley investor Michael Moritz.

• Markets are certainly rattled, but tariffs haven’t yet triggered an existential crisis on Wall Street, Rob Armstrong writes in the Unhedged newsletter. Sign up for a free 30-day trial to Rob’s weekday markets newsletter.