‘Trump bump’ turns to a Trump slump – and there could be further tests ahead with tariffs on Europe
Fuelled by expectations of a Wall Street-friendly policy platform, a “Trump bump” pushed the S&P 500 up 2.5% by the time the ticker tape had been cleared.
The rally continued after his inauguration, with the index peaking 6.3% higher by mid-February.
Since then, however, a “Trump slump” has sent markets crashing back to where they started, accelerating in the last week of unpredictable moves.
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The reality of an economic program built on trade wars saw the S&P hand back all its post-election gains by Tuesday, then fall further as tariffs imposed by executive order were removed by presidential whim.
That Trump turned to tariffs should be no surprise.
They were a central campaign promise, the “most beautiful word” in the president’s limited lexicon. The belligerence and unpredictability with which they have been deployed, however, has left markets spinning.
On Tuesday, Trump placed tariffs on America’s three largest trading partners, two of whom – Mexico and Canada – it has a free-trade agreement with. They both faced 25% levies on exports to the US (10% on the Canadian heavy crude oil on which the US still depends to keep petrol prices down) while levies on Chinese imports doubled to 20%.
Within 48 hours, the measures against Mexico and Canada were paused, leaving US businesses, economists, and trading partners wondering whether, for all his bluster, market sentiment could be a brake on the president’s ambition.
That tariffs are costly, disruptive and divisive is not in question.
Faced with huge price rises, importers have two choices: to absorb the additional cost by cutting profit margins, investment and ultimately growth, or pass them on to customers, increasing prices.
The impact was broad and immediate, sowing confusion and chaos.
The US car industry and its suppliers saw three changes to trading arrangements in 48 hours; executives of major retailers including the giant Target warned of price increases; while three north-eastern US states faced soaring energy bills as a result of counter-tariffs from Ontario that threatened supply.
Unclear motivation
What is less clear is whether Trump’s motivation is economic or political.
Treasury secretary Scott Bessent suggested on Friday it is both.
In an interview with CNBC, he said the tariffs were intended to address America’s fentanyl crisis, providing leverage to persuade Canada and Mexico to tackle cross-border smuggling, and China to curb the flow of precursor chemicals.
But Mr Bessent also insisted the Trump program will require consumers to “detox” from government support while they wait for the private sector to provide the jobs and wage growth required to outpace inflation.
That sounds like a more fundamental reset, one in which the value of the dollar, falling all week, is less of a priority.
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For the president and some of those close to him, tariffs are ideological.
Their protectionist argument is that cheap imported consumer goods have hollowed out American manufacturing, with the resulting trade deficits amounting to a tax on American jobs.
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Trump’s worldview explained
Imposing tariffs runs the theory, discourages imports and encourages manufacturing at home.
But that is a long-term correction, with the short-term cost borne by American companies and consumers and, in turn, a global economy that still orbits around the US.
There will be further tests in the coming weeks, with the White House due to announce a global reciprocal tariff regime, including the EU and UK, on 2 April.
By then we may have a better sense of whether Mr Trump’s popularity, and his ego, can withstand a market downturn, rising prices, and the criticism that would come with them.
It’s beginning to feel like “Midnight Sun” diplomacy.
In parts of Alaska, the sun doesn’t set in summer, casting light through the night but leaving you disorientated.
Ukraine latest: Zelenskyy reject’s Putin’s proposal
The Trump-Putin summit is pitched as “transparent” but it’s difficult to find any path to peace right now.
White House press secretary Karoline Leavitt has reduced it to a “listening exercise” where Donald Trump will seek a “better understanding” of the situation.
There isn’t much to understand – Russia wants territory, Ukraine isn’t ceding it – but Ms Levitt rejects talk of them “tempering expectations”.
It’s possible to be both hopeful and measured, she says, because Mr Trump wants peace but is only meeting one side on Friday.
It’s the fact that he’s only meeting Vladimir Putin that concerns European leaders, who fear Ukraine could be side-lined by any Trump-Putin pact.
Volodymyr Zelenskyy claims Mr Putin wants the rest of Donetsk and, in effect, the entire Donbas region in eastern Ukraine.
He’s ruled out surrendering that because it would rob him of key defence lines and leave Kyiv vulnerable to future offensives.
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‘Steps have been taken to remedy the situation’ in Pokrovsk
European leaders – including Sir Keir Starmer – will hold online talks with Mr Zelenskyy twice on Wednesday, on either side of a virtual call with Mr Trump and US Vice President JD Vance.
Their concerns may be getting through, hence the White House now framing the summit as a cautious fact-finding exercise and nothing more.
The only thing we really learned from the latest news conference is that the first Trump-Putin meeting in six years will be in Anchorage.
Alaska itself, with its history and geography, is a layered metaphor: a place the Russians sold to the US in the 1800s.
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Russian traditional nesting dolls with images of Vladimir Putin and Donald Trump at a gift shop in Moscow. Pic: Reuters
A remote but strategic frontier where the lines of ownership and the rules of negotiation are once again being sketched out.
On a clear day, you can see Russia from Alaska, but without Mr Zelenskyy in the room, it’s difficult to see them conquering any summit.
In the place where the sun never sets, the deal might never start.
Donald Trump has said he would try to return territory to Ukraine as he prepares to meet Vladimir Putin and lay the groundwork for a deal to bring an end to the war.
“Russia has occupied a big portion of Ukraine. They’ve occupied some very prime territory. We’re going to try and get some of that territory back for Ukraine,” the US president said at a White House news conference ahead of Friday’s summit in Alaska.
Mr Trump also said: “There’ll be some land swapping going on. I know that through Russia and through conversations with everybody, to the good of Ukraine.”
He said he’s going to see what Mr Putin “has in mind” to end the three-and-a-half-year full-scale invasion.
Donald Trump speaks to reporters at the White House. Pic: Reuters
And he said if it’s a “fair deal,” he will share it with European and NATO leaders, as well as Volodymyr Zelenskyy, who have been liaising closely with Washington ahead of the meeting.
Asked if Mr Zelenskyy was invited to the summit with Mr Putin in Alaska, Mr Trump said the Ukrainian leader “wasn’t a part of it”.
“I would say he could go, but he’s gone to a lot of meetings. You know, he’s been there for three and a half years – nothing happened,” Mr Trump added.
The US president said Mr Putin wants to get the war “over with” and “get involved” in possible talks but acknowledged Moscow’s attacks haven’t stopped.
“I’ve said that a few times and I’ve been disappointed because I’d have a great call with him and then missiles would be lobbed into Kyiv or some other place,” he said.
Mr Trump said he will tell Mr Putin “you’ve got to end this war, you’ve got to end it,” but that “it’s not up to me” to make a deal between Russia and Ukraine.
Vladimir Putin is set to meet Donald Trump in Alaska. Pic: Reuters
Zelenskyy says Russia ‘wants to buy time’
Ukrainian President Volodymyr Zelenskyy has said Russia “wants to buy time, not end the war”.
“It is obvious that the Russians simply want to buy time, not end the war,” he wrote in a post on X, after a phone call with Canada’s Prime Minister Mark Carney.
Ukrainian President Volodymyr Zelenskyy. Pic: Reuters
“The situation on the battlefield and Russia’s wicked strikes on civilian infrastructure and ordinary people prove this clearly.”
Mr Zelenskyy said the two “agreed that no decisions concerning Ukraine’s future and the security of our people can be made without Ukraine’s participation”, just as “there can be no decisions without clear security guarantees”.
Sanctions against Russia must remain in force and be “constantly strengthened,” he added.
European leaders meet ahead of call with Trump
Meanwhile, European officials have been holding meetings ahead of a phone call with Mr Trump on Wednesday.
The European Union’s foreign policy chief, Kaja Kallas, has been speaking to foreign ministers virtually, saying on X that work “on more sanctions against Russia, more military support for Ukraine and more support for Ukraine’s budgetary needs and accession process to join the EU” is under way.
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‘Russians want to carry on fighting’
Over the weekend, European leaders released a joint statement, welcoming Mr Trump’s “work to stop the killing in Ukraine”.
“We are convinced that only an approach that combines active diplomacy, support to Ukraine and pressure on the Russian Federation to end their illegal war can succeed,” read the statement.
It was signed by UK Prime Minister Sir Keir Starmer, French President Emmanuel Macron, Italian Prime Minister Giorgia Meloni, German Chancellor Friedrich Merz, Polish Prime Minister Donald Tusk, Finland’s President Alexander Stubb, and European Commission President Ursula von der Leyen.
“We underline our unwavering commitment to Ukraine’s sovereignty, independence and territorial integrity,” they said.
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Attacks continue
Despite Donald Trump’s efforts to convince Vladimir Putin to commit to a ceasefire and negotiations, Russian attacks on Ukraine have only intensified in the past few months.
Ukraine’s president has said that, in the past week, Russia launched more than 1,000 air bombs, nearly 1,400 drones and multiple missile strikes on Ukraine.
On 9 July, Russia carried out its largest aerial attack on Ukraine since the start of the war, launching more than 740 drones and missiles, breaking its records from previous weeks.
Furthermore, Mr Zelenskyy has said Russia is preparing for new offensives.
And then there were two.
It will be a Trump-Putin bilateral summit in Alaska.
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The US president has ruled out a trilateral meeting including Volodymyr Zelenskyy and is framing the talks as low stakes.
He described it as a “feel out” meeting “to see what the parameters” are, and stressed “it’s not up to me to make a deal.”
A strategic preemption perhaps, setting expectations low, and preparing the public for failure.
But he remains wedded to the notion that “land swapping” will shape any deal to end the war in Ukraine.
“Good stuff” and “bad stuff” for both sides, he said, positioning himself as the pragmatic mediator between the two.
He expressed irritation with Mr Zelenskyy’s assertion that he doesn’t have the constitutional power to concede land, though did say he hopes to get “prime territory” back for Ukraine.
Volodymyr Zelenskyy will not be attending the summit. Pic: AP
The dealmaker-in-chief
Mr Trump promised to brief the Ukrainian president and European leaders immediately after his meeting with Mr Putin.
And he voiced confidence in his ability to quickly assess the potential for a deal, boasting his business acumen.
“At the end of the meeting, probably the first two minutes, I’ll know exactly whether or not a deal can be made,” he said.
Asked how he would know, he replied: “That’s what I do, make deals.”
Members of his cabinet nodded in approval.
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Putin ‘wants war to be over’
A law-and-order crackdown in the US capital seems timed to bolster his diplomatic stance.
He branded crime in Washington “a national emergency”, took federal control of police and deployed the National Guard.
It may seem strange that Mr Trump is talking about “taking back” Washington, ahead of a rare summit with Mr Putin.
But he’s positioning himself as bold and uncompromising before he faces a man deemed bold and uncompromising.
A telling gaffe
And he conflated the two, saying: “This is a tragic emergency, and I’m going to see Putin, I’m going to Russia on Friday.”
He isn’t going to Russia. He’s going to Alaska. But that gaffe revealed how central Mr Putin is to his narrative, even domestically.
Vladimir Putin has been reluctant to meet his Ukrainian counterpart. Pic: Sputnik/Reuters
Mr Putin wants to lock in the gains Russia has made since invading Ukraine, while Mr Trump presses for a ceasefire.
But it’s hard to envisage any ice-breaking peace deal emerging from Friday’s summit in Alaska.
How could there be when Mr Zelenskyy is out in the cold?
For now, this is a Trump-Putin power play.
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