Business

1. Trade war tango
2. Contagion watch
3. Hit US where it hurts
4. Republican mutiny on ice
5. Billionaires find religion

There was an extraordinary exchange on CNBC the other day. Investor Kyle Bass defended Donald Trump’s tariffs as a “controlled burn” that will clear out the dry leaves of Joe Biden’s overheated economy and lower costs for strapped Americans. “I can’t believe what I’m listening to,” The Atlantic’s Derek Thompson responded. “They’re crashing the economy. That’s very, very different than making housing affordable.”

Bass’ argument — that tariffs will finish the job started by Jerome Powell’s interest-rate hikes — has become popular with conservatives staring down a bear market. Trump himself has amplified the idea that tanking stock prices will push investors into Treasury bonds, lowering the federal government’s borrowing costs.

The goal, as best as I can tell, is to steer a massive refinancing of federal debt through the “short-term pain” window that precedes the return of US manufacturing and a golden age of economic growth and put new, cheaper Treasury bonds in the hands of patriots invested in the country’s future. It’s a strange argument — stockholders are, if anything, more firmly bought into the future, and the US economy was pretty good already — but it’s the kind of four-dimensional chess that Trump’s supporters want to believe in.

Jason Furman, a former Obama economic adviser, called it “an absurd retrofit argument” to rationalize a stock-market crash that has tanked the confidence of everyone but the MAGA faithful. “Taking the global economy into a recession is a really terrible way of getting rates lower,” Michael Collins, managing director at PGIM, the $1.4 trillion investment arm of insurer Prudential, told me. “It’ll work, but wow, tough way to get what you want.”

Countries’ choice: retaliate or cave?

US trading partners face a choice: dig in or make a deal? So far those with the most to lose are retaliating, betting that a falling stock market will weaken Trump’s negotiating position.

China’s government promised to “fight to the end,” responded with tariffs of its own, and has ramped up scrutiny of some Western companies and deals. Mexico, the US’ biggest trading partner, hasn’t ruled out reciprocal tariffs but is so far holding off. EU countries “want to give the US time to think about the whole situation as the US market lost 5 trillion within a few days,” a Polish official said at a meeting of European trade ministers.

Smaller economies like Vietnam and Israel have capitulated, dropping their own tariffs on US goods. Also eager to deal are those with few retaliatory options, like Japan, an island nation that relies on US imports of medicines and meat and has been eyeing big purchases of American natural gas. (Japan’s status as America’s biggest creditor likely helped it land at the front of the negotiating line, following a 25-minute call between Trump and Prime Minister Shigeru Ishiba on Tuesday.)

Market watches for contagion

As the stock market’s knife-catchers step up, investors are bracing to see whether the tumult spreads into other markets.

Trouble in credit would deepen economic pain and sow seeds for a potential recession by making it harder for companies and individuals to, for example, build new factories or buy a car.

All eyes are on the corner of finance known as leveraged loans, which are made to smaller, riskier companies often owned by private-equity firms. In January, about two-thirds of those loans were trading at 100 cents on the dollar, according to Invesco. “Today, that number is effectively zero,” Larry Holzenthaler, a managing director at First Eagle Alternative Credit, which oversees $12 billion in loans, tells Semafor. “The new par is 97.”

Will rivals hit US where it hurts?

The US may not be the world’s factory, but it’s the world’s brain. As countries form their tariff responses, experts are watching for tailored broadsides not at American goods, but its services.

Despite running deep deficits in manufacturing, America sells $300 billion more in financial advice, IP licenses, consulting slide decks, and other services to other countries than it buys from them. Europe is already readying a long-discussed digital tax that would hit big US tech companies. “Just wait a few weeks,” Furman tells Semafor. Rivals will “hit us where it hurts.” Tariffs on financial and digital services would bring Wall Street and Silicon Valley CEOs into a fight that so far has hit heartland manufacturers.

White House and GOP blunt efforts to rein in tariffs

The beginnings of a Republican mutiny were quickly squashed. A bill that would have put Trump’s tariffs to a vote in Congress had seven Republican senators on board as of Monday, but appears on ice after quick action from the White House and its allies on the Hill, Semafor’s Burgess Everett reports. Republican leaders are betting they can hold the line while Trump works on new trade deals that could resuscitate the stock market and avoid price hikes. In the short term, it’s not a bad wager: Both chambers of Congress are about to leave town for two weeks of recess — an eternity in Trump’s trade wars.

Just as the financial world was counting on the market to curb Trump’s trade policies, many in Washington have pinned their hopes to Republican fears about next year’s midterm elections. “$6.4 trillion worth of wealth evaporated,” Republican Sen. Rand Paul said Monday evening. “Even if you’re supportive [of Trump] you have to question when millions of investors decided, ‘wow, this is really going to screw up the economy.’”

Masters of the universe plead for tariff respite

The billionaire class broke their silence, publicly pleading with Trump to roll back tariffs. “Business investment will grind to a halt [and] consumers will close their wallets,” wrote Bill Ackman, one of Trump’s loudest supporters to date, now warning of an “economic nuclear war.” Investor Stanley Druckenmiller — never a Trump backer but a mentor to Treasury Secretary Scott Bessent — said he didn’t support tariffs over 10%. “Forty-six percent on Vietnam? Come on!” billionaire Ken Langone told the Financial Times.

Loudest of all: Elon Musk, who described trade advisor Peter Navarro as a “moron” (and worse) on X.

Investor Dan Loeb wrote in October that “the proposed ‘America First’ policy’s tariffs will increase domestic manufacturing.” Over the weekend, he said “conceptual as well as practical errors” in the tariffs would “be a test of the administration’s judgment versus ideology,” sparking a wave of how-it-started/how-it’s-going online jabs.

Blue-chip CEOs have been slower to speak out. Jamie Dimon’s annual letter this week was tepid, warning tariffs would slow growth but putting “trade war” in quotes and noting that the US had “allowed too much unfair trade” in the past. None of the bank CEOs including Goldman Sachs’ David Solomon and Wells Fargo’s Charlie Scharf, who came away from a meeting with Commerce Secretary Howard Lutnick on “Liberation Day” concerned by the administration’s hardline stance, has made public comments.

Some financiers have taken their concerns to their lawmakers. One Wall Street executive described the market turnaround today as “a good day in hospice,” Sen. Mark Warner, D-Va., said at a hearing.

Investors like Ackman and Loeb are more sensitive to market swoons, and CEOs may be waiting for another drop: About two-thirds told a Yale poll last month that it would take a 30% drop at most in stock prices for them to speak up.

— Rohan Goswami

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➚ BUY: Terrified. Wall Street’s fear gauge, the VIX, hit its highest level outside the pandemic’s early days since 2008. Even permabull Tom Lee sounds cowed: “We want to apologize,” he told clients in a note.

➘ SELL: Verified. An anonymous, blue-checked X user with fewer than 700 followers caused a $4 trillion stocks swing yesterday by posting a false headline of a tariffs pause. The White House took the chance to correctly use the phrase “fake news.”

Companies and Deals

• Cargo shorts: BlackRock’s bid to take over two key Panamanian ports hit another obstacle. Panama’s top auditor said the current owner, Hong Kong-based CK Hutchison, owes hundreds of millions in unpaid fees, and failed to secure government clearances before signing the deal. The snag follows China’s opposition to the deal.
• Subcontinental shift: Apple plans to reroute iPhones made in India out of the local market and towards US stores, WSJ reported. Trump’s tariffs on India are half those on China, where most of the US-bound iPhones are assembled and exported. The move is a temporary fix as CEO Tim Cook looks for exemptions similar to those he secured in 2018.
• Squeeze plays: Will tariffs trigger a wave of management buyouts? South African tycoon Natie Kirsh joined a wave of insiders taking their companies private, bidding for the 40% of an Australian self-storage company he doesn’t already control. The Maersk shipping family is offering to buy out minority investors in a tug-boat operator. Trade tensions and swinging markets have put traditional M&A on ice, but insiders know their companies better and may be more confident they can steer around tariffs.
• Hot-rolled deal: The White House ordered a fresh review of the proposed sale of US Steel to Nippon Steel, a sign that the Japanese firm’s concessions — a multibillion-dollar pledge to invest in US steel factories first reported by Semafor — may have swayed Trump aides.

Markets

• Recession risk: Goldman, JPMorgan and Morgan Stanley have all hiked the odds that the US economy will shrink this year. Goldman on Monday said there was a 45% chance of a recession; JPMorgan last week put the chances at 60%.
• Policy premiums: Janus Henderson will begin managing $45 billion of bonds for UK insurer Guardian, the latest asset manager to grab life-insurance assets.

Watchdogs

• Not-so-fast fashion: Shein’s plans to move some manufacturing out of China — part of an effort to appeal to investors ahead of its long-delayed London IPO — have drawn pushback from Beijing, Bloomberg reported. Chinese officials urged the company not to shift operations as it prepares for a potential trade war with the US, one of Shein’s largest markets.

Are there any winners in the energy transition during a rapidly escalating global trade war? For the most part, tariffs clearly work against decarbonization, Semafor’s Tim McDonnell writes.

Yet there could be a few silver linings in the storm. A tanking stock market means lower borrowing costs, while central banks elsewhere like the Bank of England and the European Central Bank are projected to cut rates more than previously expected, which could benefit renewable project developers.

An earlier version of this newsletter said that First Eagle Investments manages $144 billion in loans. First Eagle manages $144 billion in overall investments, of which $12 billion are loans in First Eagle Alternative Credit. The item has been updated.