May 9, 2025: Trump’s economic strategy is starting to work

In which, an early trade deal gets signed, indicators tick up, and China comes to the table.

Trump’s economic strategy is starting to work

Big caveat at the front end: It’s a single trade deal.

HOWEVER,

Readers will note from prior newsletters and podcasts that I’ve outlined the Trump economic agenda as being premised on three elements: tariffs/trade rebalancing, tax cuts, and regulatory/budget reform. In order for the President to deliver on his many economic promises, all three elements more or less need to be moving forward. So, while the tax cuts in the budget reconciliation bill work through Congress and Cabinet Secretaries move on regulatory changes (particularly in energy production), the President’s team is working on negotiating trade deals.

Here’s the order in which things occur. Early wins with key partners means it’ll smooth the way for others. So, a trade deal with the UK, opens up the way for working with the rest of the Commonwealth (like Canada) and sets the table for the heavier lift of a deal with the EU.

But the big prize will be China, which is probably why attention has turned to deals with India and Japan.

Should Trump start landing trade deals with the UK, Commonwealth countries, India, Japan, and moving forward with the EU, China will find itself in an increasingly difficult position to maintain punishing tariffs against the US, and that might be exactly why China representatives are meeting with Treasury Secretary Bessent in Switzerland this week with Trump dangling the possibility of tariff relief or more sanctions in front of them.

It’s still too early to tell if all of this will come together, but progress is being made in the right directions, which voters would likely be supportive of. So, I, along with the markets, offer cautious optimism that the Trump economic agenda may be starting to work. The Fed appears to remain skeptical for now, though.

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