USD, UST, and stocks surged on fading concern of Trumpcession

·       But Trump’s constant flip-flops on tariff policies and uncertainties may keep Wall Street under stress; Trump may lose both the Vote and the Note bank

·       Trump may again postpone his reciprocal tariffs from July to December 2025 to prevent a supply shock for the US economy, even for daily-use items

·       Trump may eventually agree to a 10% minimum universal US tariffs after securing a favorable trade deal and fair & free access to US exports

·       Trump is using his tariff threat to get better deals from trading partner countries about US exports, and also onshore US manufacturing as much as possible and feasible

On Friday, May 23, Wall Street Futures slumped on Trump’s EU and Apple tariffs, but recovered from the panic low on hopes of other tariff deals and assuming that these are all Trump’s negotiation strategy. On early Monday, April 26, Asian Session, Wall Street Futures recovered after the simultaneous announcement by both VDL and Trump about the commitment to a trade deal and extension of the tariff pause till July 9, 2025, the original deadline; However, Trump is set to extend his tariff pause till at least Dec’25, if not permanently. On late Monday, May 26, 2025, Wall Street Futures stumbled again amid lingering Trump tariff uncertainty.

Trump’s Tariffs and Trade Policy Uncertainty

General Tariff Strategy: Trump has continued to defend his aggressive tariff policies, emphasizing their role in promoting U.S. manufacturing and reducing trade deficits. He described tariffs as a tool to pressure countries into fairer trade agreements, claiming they encourage domestic production and job creation.

Trump’s EU Tariffs flip-flops

On May 23, Trump announced a proposed 50% tariff on all EU goods, effective June 1, 2025, citing stalled trade negotiations and claiming that the EU was formed to "take advantage of the United States on trade." He described the EU as "very difficult to deal with" and "nastier than China" in trade talks. On May 25, following a call with European Commission President Ursula von der Leyen, Trump agreed to extend the EU tariff deadline from June 1 to July 9, 2025, to allow for further negotiations. He described the call as "very nice" and noted von der Leyen’s request to "rapidly get together" for talks. Trump confirmed this in a post on his @realDonaldTrump account, stating it was his "privilege" to grant the extension. Some reports suggest the tariff threat may partly stem from European/EU reluctance to align with U.S. policies on China, though this is speculative and unconfirmed.

On May 27, 2025, Trump again tried to pressure the EU on tariffs and accelerate the negotiation process rather than the typical European style of going slow. Trump urged the EU to open up its economy for free & fair access to US goods, including cars and farm products:

“I was extremely satisfied with the 50% Tariff allotment on the European Union, especially since they were “slow walking (to put it mildly!), our negotiations with them. Remember, I am empowered to “SET A DEAL” for Trade into the United States if we are unable to make a deal, or are treated unfairly. I have just been informed that the E.U. has called to quickly establish meeting dates. This is a positive event, and I hope that they will, FINALLY, like my same demand to China, open up the European Nations for Trade with the United States of America. They will BOTH be very happy and successful, if they do!!!”

European Union (EU): Trump previously threatened to escalate a trade war with the EU, stating in a social media post that he could impose 200% tariffs on European wine and champagne in response to the EU’s retaliatory 50% tariffs on U.S. whiskey and other products. This followed the EU’s reaction to U.S. tariffs on steel and aluminum, indicating heightened tensions in U.S.-EU trade relations.

Overall, Trump’s recent comments have focused on justifying his tariff policies as a means to strengthen U.S. manufacturing and negotiate better trade deals with countries like the EU, India, and China. He has acknowledged short-term economic disruptions but insists they will lead to long-term gains, dismissing recession fears and emphasizing trade negotiations. However, his policies have sparked significant debate, with critics highlighting the risks of inflation and global trade tensions.

Trump’s Comments on Russia, Putin, and the Ukraine War

Reaction to Intensified Russian Attacks: On May 26, 2025, following Russia’s largest aerial assault on Ukrainian cities, including its capital, Kiev, since the war began in 2022, which involved 367 drones and missiles killing at least 12 people, Trump sharply criticized Putin. He posted on Truth Social, stating that Putin “has gone CRAZY” and is “needlessly killing a lot of people.” He expressed personal frustration, saying, “I don’t know what the hell happened to Putin. I’ve known him for a long time. I have always gotten along with him. But he’s sending rockets into cities and killing people, and I don’t like it.” Trump also told reporters in New Jersey, “I’m not happy with what Putin is doing,” emphasizing that the attacks defied ceasefire efforts.

Ceasefire Negotiations and Delays: Trump has been pushing for a ceasefire, particularly a U.S.-proposed 30-day unconditional truce, which Ukraine accepted but Russia rejected. On May 26, 2025, he indicated openness to further sanctions on Moscow, saying “absolutely” when asked about additional measures to pressure Russia into agreeing to a ceasefire. He expressed frustration with Putin’s refusal to commit to an immediate ceasefire, noting that Russia’s continued attacks, including the massive drone and missile strikes, undermined peace talks. Trump also criticized Ukrainian President Zelenskyy’s rhetoric, stating on Truth Social that Zelenskyy was “doing his country no favors by talking the way he does” and that “everything out of his mouth causes problems,” suggesting both leaders were complicating negotiations.

Trump’s comments followed Russia’s intensified bombardment of Ukrainian cities, including Kyiv, on May 24–25, 2025, which Ukrainian officials described as the largest aerial assault of the war. These attacks came after Russia and Ukraine held direct talks in Istanbul on May 16, 2025, the first since March 2022, which resulted in a prisoner swap but no ceasefire agreement.

Trump had spoken with Putin on May 19, 2025, for over two hours, describing the call as “excellent” and claiming that Russia and Ukraine would “immediately start negotiations toward a Ceasefire and, more importantly, an END to the War.” However, Putin only agreed to work on a “memorandum” for future peace talks, which Ukraine and its allies viewed as a delaying tactic. Trump’s subsequent remarks on May 26 reflected growing irritation with Putin’s escalation, particularly as Russia rejected the 30-day ceasefire proposal.

Despite his criticism, Trump dangled economic incentives for Russia, stating on Truth Social that Russia could see “large-scale TRADE with the United States” and “massive amounts of jobs and wealth” if the war ends. He suggested similar trade benefits for Ukraine, framing a potential ceasefire as economically advantageous for both parties.

Sanctions and Pressure: Trump’s consideration of new sanctions aligns with European leaders’ calls for tougher measures if Russia continues to reject a ceasefire. He has not yet imposed new sanctions, focusing instead on diplomatic pressure, but his comments on May 26 indicate a shift toward a harder stance on Russia due to the intensified attacks.

Ukrainian officials, including Zelenskyy, have expressed frustration with Trump’s approach, arguing that his reluctance to impose immediate sanctions encourages Putin’s aggression. Trump’s criticism of Zelenskyy alongside Putin dilutes pressure on Russia. European leaders, like Germany’s Friedrich Merz and France’s Emmanuel Macron, have urged stronger U.S. action, warning that Putin’s tactics aim to prolong the war. Ukrainian officials view Putin’s responses as stalling tactics, with demands like Ukraine’s demilitarization and cessation of Western aid seen as non-starters. Trump’s optimism about ceasefire talks contrasts with Putin’s insistence on conditions that undermine Ukraine’s sovereignty, raising doubts about near-term progress.

For the last few days, Trump has expressed strong disapproval of Putin’s intensified attacks on Ukraine, calling him “absolutely crazy” for launching massive drone and missile strikes that killed civilians. He has pushed for a ceasefire, voiced frustration with both Putin and Zelenskyy for delaying progress, and indicated openness to new sanctions on Russia.

Trump posted on his Truth on May 26, 2025:

I’ve always had a very good relationship with Vladimir Putin of Russia, but something has happened to him. He has gone CRAZY! He is needlessly killing a lot of people, and I’m not just talking about soldiers. Missiles and drones are being shot into Cities in Ukraine, for no reason whatsoever. I’ve always said that he wants ALL of Ukraine, not just a piece of it, and maybe that’s proving to be right, but if he does, it will lead to the downfall of Russia! Likewise, President Zelenskyy is doing his Country no favors by talking the way he does. Everything out of his mouth causes problems, I don’t like it, and it better stop. This is a War that would never have started if I were President. This is Zelenskyy’s, Putin’s, and Biden’s War, not “Trump’s.” I am only helping to put out the big and ugly fires that have been started through Gross Incompetence and Hatred.

Fast forward to May 27, the US National Economic Council (NEC) Director, Kevin Hassett, made several comments regarding President Donald Trump’s tariff policies and their economic implications, particularly concerning the European Union (EU), India, China, and other countries. Hassett indirectly warned other countries not to talk about retaliatory tariffs against Trump’s tariffs.

General Tariff Strategy: 10% is the floor and the best tariff for other countries offering the best trade deals

Hassett has consistently defended Trump’s tariff policies, emphasizing their role in encouraging domestic production and reducing trade deficits. He argued that tariffs pressure trading partners to negotiate fairer trade terms, with over 50 countries reaching out to discuss reciprocal trade agreements since Trump’s tariff announcements. He noted that more than 10 countries have made “amazing” trade deal offers, with some deals, including with India, nearing completion. Hassett also made it clear that a 10% minimum basic tariff is the floor for the trading partners, which offer better trade deals, including removing non-tariff barriers for free & fair access to US goods.

European Union (EU): Hassett described negotiations with the EU as challenging due to internal disagreements among 27 member states (different countries) about priorities, which complicates reaching a unified trade stance. He suggested that this lack of cohesion makes it difficult for the EU to present a clear negotiation strategy. The EU paused counter-tariffs on $23.25 billion of U.S. imports to allow for negotiations, but Hassett indicated that the U.S. expects substantial concessions to avoid reciprocal tariffs.

India: Hassett highlighted India’s high tariffs, averaging 17% (12% trade-weighted) compared to the U.S.’s 3.3% (2.2% trade-weighted), as a barrier to imports. He noted that India is among the countries close to finalizing trade deals with the U.S., with the potential for tariffs to drop to 10% or lower for nations offering favorable terms. Hassett suggested that India’s Prime Minister Modi has significant topics to discuss with Trump to address trade imbalances, and India has signaled it may not retaliate against U.S. tariffs to facilitate these talks. But overall, Hassett indicated the India trade deal is not finalized yet.

China: Hassett has been vocal about China’s trade practices, arguing that tariffs pressure Beijing to address issues like intellectual property theft and forced technology transfers, which he estimated cost the U.S. economy $400–500 billion annually. He stated that China is “eager to play ball” on trade negotiations, but the U.S. has escalated tariffs to 145% on Chinese goods, prompting China to impose 125% retaliatory tariffs. Hassett maintained that China bears the brunt of these tariffs due to its inelastic supply, minimizing the impact on U.S. consumers.

Other Countries: Hassett noted that countries like Japan, South Korea, Israel, and Taiwan are actively engaging in trade talks, with some offering to lower tariffs on U.S. products (e.g., Vietnam on agricultural goods). He emphasized that the 10% baseline tariff would likely remain for most countries unless “extraordinary” deals are secured. Russia was notably excluded from initial tariffs due to ongoing geopolitical negotiations, though Hassett clarified this does not exempt Russia long-term.

Impact on U.S. Consumers: Hassett downplayed concerns about tariffs raising consumer prices, arguing that foreign countries, particularly those with inelastic supply like China, absorb much of the tariff cost. He suggested that any price increases would be minimal and offset by long-term benefits like job creation and increased U.S. manufacturing. He cited anecdotal evidence of U.S. auto plants adding shifts due to tariffs.

Economic Outlook and Recession Fears: Hassett expressed strong optimism about the U.S. economy, dismissing recession fears as “exaggerated” and “irresponsible rhetoric.” He stated that the U.S. would “100% not” face a recession in 2025, attributing this to Trump’s broader supply-side agenda, including tax cuts, deregulation, and energy policies (“drill, baby, drill”). He argued that tariffs affect only 14% of GDP (imports), while the remaining 86% benefits from other pro-growth policies.

Global Economic Impact: Hassett argued that tariffs could lead to a “bullish” global economic outlook by encouraging countries to negotiate fairer trade terms. He suggested that Canada and Mexico, for instance, face political pressure to align with U.S. demands, potentially benefiting their economies. He also claimed that tariffs have spurred investment in U.S. manufacturing, with Trump estimating over $7-10 trillion in new investments.

On Trump’s 25% tariff threat to Apple for manufacturing outside the US

Intent Not to Harm Apple: Hassett emphasized that the Trump administration’s goal is not to harm Apple, stating, “In the end, we don’t want to harm Apple.” He suggested that the tariff threat is a negotiation tactic to encourage Apple to shift production to the U.S., rather than a punitive measure against the company.

Elastic Supply and Consumer Impact: Hassett argued that Apple could absorb the tariff costs rather than passing them onto consumers, due to the elastic supply of iPhones. He explained, “If you think that Apple has a factory someplace that’s got a set number of iPhones that it produces and it needs to sell them no matter what, then Apple will bear those tariffs, not consumers because it’s an elastic supply.” This aligns with the administration’s push for companies to shoulder tariff costs, similar to Trump’s directive to Walmart to “eat the tariffs.”

Response to Price Increase Concerns: When a CNBC host raised concerns about the potential for iPhone prices to rise to $3,000 or $3,500 if manufactured totally in the U.S., Hassett acknowledged the challenge but remained noncommittal, saying, “We’ll see how it works out.” He clarified that the administration’s focus is to “onshore as much as we can in the U.S.” and reduce reliance on imports, particularly from China, without directly addressing the $3,500 estimate vs the present cost of around $1000.

Make in America Push

Hassett framed the tariff threat as part of a broader strategy to bring manufacturing back to the U.S., stating, “What we’re trying to do is onshore as much as we can in the U.S. and make it so that the U.S. is not hyper-dependent on imports from China.” He suggested that Apple could play a role in strengthening domestic supply chains, particularly in semiconductors, though he did not provide specifics on how this would be achieved.

Hassett noted that the tariff threat is intended to create leverage in trade negotiations, dismissing claims of a “catastrophe” from a “tiny little tariff.” He indicated that Apple’s response, including potential discussions with CEO Tim Cook, would determine the outcome, with the administration open to adjusting tariffs if companies demonstrate efforts to localize production. Hassett’s comments were in response to Trump’s social media post on May 23, 2025, and subsequent comments where he warned that Apple, Samsung, or any other company would face a 25% or higher tariff on iPhones/smartphones made outside the U.S., specifically targeting production in India and China.

Hassett’s stance reflects the administration’s broader tariff strategy, which he described as encouraging domestic production while pressuring companies to avoid passing costs to consumers. However, he offered no concrete solutions for Apple’s complex global supply chain or the feasibility of U.S.-based iPhone production at current price points. The US industrial ecosystem at present is simply not equipped to produce an iPhone from scratch and sell it to US consumers for ~$1000 with a decent profit. The US domestic supply chain is not ready to supply all the required parts of an iPhone without importing from China or any other country. And if China stops supplying its rare earth materials to the US, it will be very difficult for the US to produce smartphones for jet planes in the first place.

Hassett’s comments reflect a strong belief in tariffs as a tool to reshape global trade in favor of U.S. interests, particularly by pressuring countries like the EU, India, Japan, and China to negotiate. He remains optimistic about the economic outlook, emphasizing job creation and manufacturing growth while dismissing recession concerns. However, his assertions face significant criticism for potentially underestimating the inflationary and disruptive effects of tariffs.

Highlights of the US NEC Director Hassett’s comments on May 27, 2025:

·       Everybody is trying to make it seem like it’s a catastrophe if there’s a tiny little tariff on them (Apple) right now, to try to negotiate down the tariffs

·       In the end, we’ll see what happens, we’ll see what the update is, but we don’t want to harm Apple

·       If you think that Apple has a factory somewhere that’s got a set number of iPhones that it produces and it needs to sell them no matter what, then Apple will bear those tariffs, not consumers, because it’s an elastic supply

·       India among deals close to the finish line

·       Lower tariffs would be for countries with good offers

Highlights of comments by Fed’s Kashkari on May 27, 2025:

·       Slow Movement May Be Warranted Amid Uncertainty

·       Maintains Rates Until Tariff Clarity

·       The current Federal Reserve policy is likely only modestly restrictive

·       May take months or years to conclude trade talks

·       The Taylor Rule is not an appropriate tool in the current situation

·       Protecting long-run inflation views is crucial

·       Levies on intermediate products take time to pass through

·       Reasons back holding the Fed policy rate until more clarity on tariffs impact on prices and economic activity

·       Healthy debate among Fed policymakers on whether to look through the inflationary effects of new tariffs

Conclusions

Trump’s overall hawkish tariff & trade narrative is a negotiation tool to get a better trade deal for US exports and also to promote the ‘Made in America’ theme. Even India, China, the EU, and most of the other countries have some tariffs and non-tariff barriers to encourage domestic manufacturing to boost local employment and reduce dependency on other countries, friends/allies, or foes/adversaries. Trump is trying to change the internal system of other countries in line with US philosophy, like no Federal VAT/GST, which is not possible.

Trump’s 10% minimum tariffs are equivalent to the EU’s 2.5% basic tariffs plus 7.5% average central VAT. Trump was ready to blink as his 50% tariffs on the EU were designed to get favorable deals and concessions. Trump tariffs have to be ultimately borne by the American public/SMEs (vote bank) and corporate America (note bank). Thus, Trump is bound to scale back his reciprocal tariff policies for the sake of both the Vote and Note bank and pause it at least till December 31 from July 9, 2025.

The US collects tax revenue of around 5% of nominal GDP against India’s 20% and 10-15% by most other AEs, including China and the EU. Trump can collect around $300=500B annually from his 10-15% basic tariffs (on around $3T imported goods). But if Trump imposes 15% Federal VAT/GST on $20T worth of US consumption of goods and services, then the VAT/GST collection would be around $3T, almost 10% of US nominal GDP; the overall revenue in line with present tariffs and income tax structure would be 15% of nominal GDP, in line with AEs.

As per US Treasury Secretary Bessent’s recent comments, the US may adopt a Federal VAT/GST policy after a few years of high tariffs. Ensuring adequate US manufacturing. The US may be targeting 2028-30 to reduce tariffs from 10% to 5%, along with the introduction of a Federal VAT/GST 15% on all goods & services with a 50:50 ratio sharing with states (in line with the India model). The US needs higher tax revenue, like Federal GST/VAT, along with moderate basic tariffs, due to deficit spending like industrial and logistical/transport infrastructure to make America Great Again (MAGA).

Market wrap:

On Tuesday, May 27, 2025, US stocks surged sharply after the stock exchanges reopened after the long weekend, on de-escalation of the US-EU trade & tariff war. The US and global bond yields eased amid an easing of global trade war tensions and as Japan's finance ministry indicated it may scale back government bond issuance, calming recent volatility in its debt market; bond yields slipped, and equities surged.

The S&P 500 surged almost 2%, the Dow Jones (DJ-30) gained almost 1.7%, and the Nasdaq 100 jumped over 2%. Tesla jumped after CEO Musk vowed to refocus on his company and less on politics (Trumponomics). Trump Media soared on reports it plans to raise $3 billion to invest in crypto (BTC). US Steel extended Friday’s rally on news that it will be acquired by Nippon Steel for $55 per share, compared to yesterday's close of $52. Apple recovered after Trump’s NEC Hassett clarified the Trump admin is not seeking to harm Apple in a bid to control ‘Note Bank’ damage caused by his boss, Trump.

On Tuesday, Wall Street was boosted by all the major sectors, led by consumer discretionary, techs, communication services, real estate, industrials, financials, materials, healthcare, utilities, consumer staples, and energy. Almost all 30 scrips of DJ-30 were in deep to moderate green, except Boeing and UnitedHealth.

Gold slumped on a stronger USD and fading concern of Trumpcession after Trump scaled back his 50% EU tariffs narrative. Oil wobbled on Trump’s flip-flops of Iran and Russian sanctions, coupled with OPEC’s plan to again hike production.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 41400) now has to sustain over 41800 for a further rally towards 42000/42500-43000/43300* and 43500*, and even 44600-45200 in the coming days; otherwise sustaining below 41700, DJ-30 may again fall to 41000/40600-4010039900 and 39700/38600-38000/37700-37300/37000 in the coming days.

Similarly, NQ-100 Future (20200) has to sustain over 20800 for a further rally to 21100/21400-21700*/22000* and 22400-22600 in the coming days; otherwise, sustaining below 20750/20600-20500/20400, NQ-100 may again fall to 20000/19600-19400/19200 and 19100/18800-18600/18000-17600/16400 and 16200-15800 in the coming days.

Also, technically Gold (CMP: 3240) has to sustain over 3275-3300 for any recovery to 3325/3375* and 3400/3425-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3290-3275, Gold may again fall to 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.