Tariffs offer 'Trump trade' Pollyannas a reality check: McGeever

By Jamie McGeever

ORLANDO, Florida (Reuters) -"I don't like Trump, but..."

This common refrain was heard throughout a major investor conference held in Miami last week, reflecting the financial industry's overwhelming optimism that the U.S. president's economic agenda will make both Wall Street and Main Street great again. 

Donald Trump's announcement of sweeping tariffs on Saturday, however, could put that optimism to the test, even though some have already been put on hold.

The consensus "vibe" at the iConnections Global Alts/Managed Futures Association conference in Miami, which attracted more than 5,000 people from across the investment universe, was clear. The economic and market gains to be had from Trump's plans to slash taxes, public spending and regulations override whatever downside there may be in his tariff and immigration policies, never mind doubts around his broader politics, character or personality.

Business will be freed from the shackles of burdensome red tape, inefficient government will be cut down to size, and capital will flow to the most productive parts of the economy – or so the thinking goes. 

"It's an exciting time to be in risk assets, and it's deflationary in the end because a lot of it's going to come through less regulation and creative destruction," said David Zervos, chief market strategist at Jefferies, on a panel with Morgan Stanley's head of U.S. equity research Mike Wilson.

"As an individual person and somebody who's lived the American dream, I'm excited," Wilson said. 

One anecdotal tidbit was telling. The fireside chat with Karen Karniol-Tambour, co-CIO of hedge fund colossus Bridgewater Associates, filled little more than half of a roughly 1,000-seat hall, while the conversation later that afternoon with Vivek Ramaswamy, a Trump ally and former Republican presidential candidate, was packed to the rafters. 

This is not to say that the majority of conference attendees would consider themselves part of the "MAGA" crowd. But the clamor to get closer to the administration - and likely justify a few priors - was palpable. 

REALITY CHECK 

But a cloud hangs over this Trump optimism after the president slapped 25% tariffs on Canada and Mexico, and 10% on China, although his sudden announcement on Monday that the Mexico tariffs are on ice lifted that cloud a little - stocks around the world cut their losses and the dollar cut its gains.

The initial announcement on Saturday should not have come as a huge surprise, as Trump has been telegraphing these tariffs for weeks. And despite the positive Trump "vibes," the bond and currency markets have been reflecting the rising tariff risk since the election. 

Yet U.S. equity markets had still mostly continued to defy gravity – with a few stumbles, like last Monday's DeepSeek-fueled ructions – thanks to the wave of global capital that has flooded into the U.S. and the sizzling performance of a handful of Big Tech companies.

VIBE SHIFT

In many ways, we are at "U.S. exceptionalism" - U.S. stocks have never been higher and Wall Street's global dominance has never been greater, corporate profit margins are the widest since the 1960s, real GDP growth is humming along nicely and unemployment is anchored near 4%. Animal spirits seem alive and well.

But it is worth remembering that when economist John Maynard Keynes coined the term "animal spirits" in the 1930s, he was stressing the need to spur "spontaneous optimism" when the engine of capitalism was sputtering, not when it was already roaring. Firing them up now may not be such a wise idea. 

Launching a global trade war might not be such a wise idea either although the "Trump trade" Pollyannas will argue that, as Monday's developments with Mexico show, Trump is simply seeking to draw concessions and that the tariffs will be short-lived. Even if tariffs are kept in place, markets will adjust soon enough.

If so, Trump's plans to slash taxes, federal spending and regulation may soon lift investor sentiment and markets again. But if Saturday's announcement was the beginning of a genuine global trade war, then Wall Street may be in store for a much bigger vibe shift. And not in a good way. 

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever in Orlando, Florida; Editing by Matthew Lewis)