Trump’s April 2025 Market Scare: Blunder or Brilliance?

Is Donald Trump moving the market on purpose? Or has he lost control of the economy just months into his second term?

The initial reaction to a Trump win in November 2024 was a rally as investors began to bet on deregulation, tax cuts, and even then, tariffs – widely understood to be part of Trump’s economic strategy before the election.

Off the back of Donald Trump’s inauguration in late January, US stock markets reached all-time highs fueled by optimism of what has been promised to be an extraordinarily successful economic period for the American people.

However, since then, markets have tumbled and climbed fast. Trump’s wildly unpredictable tariff announcements have plunged the global markets into turmoil and uncertainty. Tariff announcements in February regarding neighbouring Mexico and Canada saw some drawbacks in major US markets but more notably saw a huge rally in gold, driving the precious metal above $3000 per Ounce for the first time in history.

The major shift and cause for alarm amongst even the general public was the state of the markets after Trump announced the full extent of his planned reciprocal Tariffs.

The announcement saw the S&P 500 – renowned as the strongest and safest index of companies – plunge over 12% in just 7 days before a momentous rally back on Wednesday, 9th April, when Trump announced a 90-day pause on tariffs for all countries except China, who were subject to a new 125% tariff rate.

The central question behind these policies is whether these tariffs are a reckless move fueled by ego or a carefully calculated strategy with a deeper purpose.

Trump’s leading public argument is that he wants the United States to stop being ‘ripped off’’. A deeper probe could suggest this is a complex strategy to tackle the US debt crisis – a problem he’s pledged to solve.

Trump’s Official Stance

Since the beginning of his electoral campaign, Donald Trump has sought to deregulate, cut taxes, implement tariffs, and stop unnecessary spending. Why? To increase the economic power of Americans and tackle the bubbling debt crisis. Citing on multiple occasions the McKinley Tariff Act of 1890, which saw the US implement widespread tariffs and stipulated that any surplus revenue should be applied to a “sinking fund” whose purpose was to reduce the national debt rather than be used for general government spending. The sinking fund also had a committee overseeing how to spend excess revenue.

The most contentious matter and currently prominent matter is the tariffs. Trump believes that the income generated from tariffs on imports can raise billions annually and finally solve the trade deficit. In 2024, the United States had a $1.2 trillion trade deficit. If Trump can shrink or eliminate the deficit, he will be prioritising the use of domestic products. He also understands the need to bring back jobs in steel, auto, and tech sectors, reversing decades of outsourcing.

An Ulterior – Perhaps Genius – Motive: Tackling the Debt Crisis US Debt is currently approaching $37 Trillion. An increasingly unsustainable figure. One of Trump’s goals is to not only stop the growth but also start reducing the US Debt figure.  A major part of the crisis is the enormous interest payments. The 2024 budget saw 13% spent on interest payments alone – $892 billion.

The reality is Trump won’t be able to handle the crisis without navigating interest payments, and the next 6 months are crucial. In this period alone, the US has $7 Trillion to refinance. Trump knows that refinancing at current yields and rates will make his task near impossible. So, the answer? To reduce bond yields and lower interest rates. But in a current economic state where inflation has been prominent, interest rates well above recent lows, and the stock market – until recently – increasingly reaching new highs, how can this be achieved?

The most logical answer is an increased demand for Bonds. Thus driving yields down, allowing the US to issue new debt with lower coupon rates. The issue is that in a market where equities continue to perform, demand for bonds is limited. Therefore, the first thing Trump needs to do is drive people away from speculative assets into the stability of bonds. This is being achieved – whether deliberately or consequently – by causing a huge spike in volatility. Financial markets love predictability, and at the moment, Trump is altering his tariff decisions day-by-day, albeit whilst keeping a consistent message.

This volatility is demonstrated by the volatility index (VIX) reaching a figure of 52.32. For reference, the average in 2024 was 16.54, with the Covid-19 crash at 82.69 and the breakout of the Russia-Ukraine war at 36.45.

Source: Yahoo Finance

As shown, the markets have no idea what will happen next, with fake headlines prompting multi-trillion dollar rallies in seconds and legitimate announcements having similar and inverse effects. Now, it’s not necessarily true that Trump wants markets to perform poorly, just volatility is enough for him to achieve his goals.

The next stage of Trump’s plan would be for interest rates to fall, and we’re already seeing the President putting large and public pressure on Federal Reserve chairman Jerome Powell on social media platforms. This would lower the cost of borrowing within an economy, putting further downward pressure on bond yields, with markets willing to accept lower returns for stable assets. This – in theory – should actually boost the price of equities, prompting a stronger market as rate cuts are typically inflationary.

Another strategy for decreasing bond yields is quantitative easing (QE), where the Federal Reserve would buy back bonds from the secondary market, increasing the price of the bonds and thereby decreasing the yields. This is also inflationary, maybe more so than interest rate cuts, and would probably not be used in the short-term by Trump, as he also aims to keep inflation coming down. That said, it could be a tool used later down the line.

The result of lower bond yields is clear: the $7 Trillion that needs to be refinanced in the coming months can be done at far lower rates and save the United States billions in interest repayments. This, ultimately, is the goal.

Has Trump Popped a Bubble Early?

Whilst it’s true that shaking the markets may not be the most ethical practice for a sitting President to do, he may have good reason to – aside from financial motivations.

There’s an apparent consensus that the stock markets are due a correction, though there’s debate on the scalability of said correction.

S&P 500 Adjusted to Money Supply – Nearing DotCom Levels

With the S&P 500 reaching all-time highs in 2025, up 168% since the 2020 COVID crash. Outpacing the M2 money supply growth – a stark and frightening parallel with the early 2000s dot-com bubble. Whilst in a debt-based financial system, we expect markets to grow consistently over time as the purchasing power of the native currency falls, claims of a bubble aren’t without merit. A key indicator of a stock market correction is large players hoarding cash. Typically, cash is a poor asset to hold, particularly in a high-inflation period as the purchasing power erodes. Therefore, with Warren Buffet’s Berkshire Hathaway sitting on a record $350 billion in cash (as of late 2024), there is a clear feeling that the markets are in an overvalued state.

Has Trump taken advantage of investor sentiment and shaken the markets simultaneously? He certainly has the motives. Firstly, a ‘controlled’ or ‘engineered’ crash is better than a surprise and uncontrolled crash. Financially, a market crash would drive investors to the bond markets. Lastly, Trump has wasted no time implementing measures; he has a lot to achieve, and there’s no point taking too much time. However, by acting fast and with markets reacting early into his presidential term, Trump has the benefit of being able to blame the previous administration for a ‘shoddy economy’, ultimately laying the blame for potential market downs on the Biden administration.

What Could Happen Next?

Trump needs to successfully navigate the response to the tariffs. Already, many countries are pushing to negotiate and will likely remove tariffs against the USA. Notably, not blinking yet is China. It’s likely we’re set to see an intense trade war with reciprocal tariffs either way. Already, both China and the US have begun trying to outdo each other with increased tariffs. With China imposing an 84% rate compared to the more recent 125% tariff set by the US – note these figures are true as of the 10th of April and could be different by the time this article is published, emphasising the fluidity of the situation.

There’s also the reality that despite 10-year treasury yields falling from 4.8% to around 3.8% from January to early April, yields are back above 4%. With all the volatility, why? Some claim inflation fears, some say the economic outlook is still relatively solid, but maybe it’s because China has been selling US Treasuries.

China – with the recent tariffs, has seen its currency (Chinese Yuan) fall to a recent low against the US Dollar. This, with seemingly ever-increasing tariffs on China, could lead to a consistent devaluation of the Yuan. As a result, foreign investment will look to leave the Bank of China, causing them to be forced into selling US Debt, increasing yields.

Alternatively, this could be part of China’s economic attacks, knowing that Trump wants lower yields – even mentioning him on X in a cryptic yet provocative post.

Aside from China, Trump will look to continue his plan once he has successfully refinanced a sizable amount of US debt. The first measure we will likely see is interest rate cuts from the Federal Reserve. This will further drive yields down but also lay the foundation for a strong US stock market, as whilst bonds are more predictable, they’ll provide a smaller reward.

The second major change to the US economy in 2025 as a step to revolutionise the financial system will be to begin huge tax cuts. Trump could go as far as to remove or at least drastically reduce federal income taxes. Trump has said many times how the introduction of income tax was a disaster, specifically when discussing taxes and tariffs: ‘We should stop taxing our people and enriching foreign nations and instead enrich the American people and tax/tariff foreign nations’.

The last substantial measure that could see a huge rally in the markets following the aftermath of the tariffs coming into place could be a huge injection of money supply into the US.

The reasons for this are two-fold.

Trump has gone on record to say he wants a weaker dollar, and with the tariffs coming into force, this is making more sense. As Trump rebuilds the US agriculture and manufacturing industries, we won’t want to provide goods solely domestically, and he wants to reduce the deficit. There are two ways: the obvious way is to stop importing as many tariffs, making that more expensive. Secondly, shifts to domestic and mass-manufacturing goods alongside a weaker dollar will allow foreign nations to purchase US goods more affordably.

The best way to devalue a fiat-currency, the money supply needs to increase. Therefore, expect quantitative easing from the Federal Reserve – further lowering bond yields, as the Fed prints electronic money to buy bonds from the secondary markets. But also don’t be surprised if we see a covid-like stimulus package.

A glaring dialogue which could achieve this is the mention of a Department of Government Efficiency (DOGE) refund. Doge has already saved over $2600 per US Taxpayer. Elon Musk and Trump clearly stated that one option would be to issue a DOGE refund. This may not achieve new money being created, but it would mean new money entering back into the economy in a more efficient way. The result of the COVID-19 stimulus package was stark, with an enormous rally in equities following suit.

Final Remarks

Trump’s tariff policies are certainly controversial. Substantial uproar from leading financiers and economists is exacerbating turbulent market conditions. The reality is Trump won’t change course, though he might take another route.

If the theory above does play out, Trump’s policies could be renowned as an economic marvel. Though the question still exists, is this the plan or has his ego prompted unnecessarily high tariffs without considering the consequences on US citizens or the financial markets?

The challenge will be bringing manufacturing back to the US on a large enough scale that will satisfy demand for US companies. Conversely, reciprocal tariffs could see other countries remove their own tariffs resulting in ever cheaper bottom lines for US companies.

Regardless of whether this is a blunder or brilliance, consumers will most probably face higher prices, especially with a potential quantitative easing. With impending tax cuts, possibly income tax, consumers will have more disposable income and, on top of this, expect more jobs to be made, boosting the demand for workers and, therefore, increasing wages.

Trump is leveraging the US market dominance to push a massive shift in the global financial system and global trade. These shifts, whilst rare, aren’t unprecedented, change does happen, think back 54 years to 1971, when Nixon took the world off of the Gold standard by removing the convertibility of the US Dollar into gold.

Whether genius or chaos, Trump’s 2025 crash could redefine America’s economic future – love him or hate him, he’s playing to win.