Why The Financial Markets Are The Only Real Check On Trump

Trump, the Markets, and the Balance of Power

The relationship between President Trump and the financial markets has always been a unique one. As the 47th President continues to implement policies that draw both praise and criticism, the markets have emerged as a key arbiter of his actions. In recent weeks, Trump has made waves with his tariff announcements targeting Canada, Mexico, and China. These moves sent shockwaves through the markets, with the S&P 500 and NASDAQ both experiencing significant drops. The immediate reaction of investors to these policies highlights the interconnectedness of political decisions and economic outcomes. While Trump has shown a willingness to use executive power to push through his agenda, the markets have consistently served as a check on his impulses, influencing his decisions and, at times, forcing him to reconsider.

A President Attuned to the Markets

President Trump’s connection to the financial markets is unlike that of any other U.S. president. From his early days as a businessman in Queens to his frequent interactions with Wall Street elites, Trump has always been keenly aware of the markets’ power. During his first term, his trade war with China led to significant market volatility, and while he initially doubled down on his positions, the economic fallout eventually prompted him to pivot. This pattern of behavior suggests that Trump is not immune to the markets’ reactions, and their performance has often guided his policy decisions. As Wharton emeritus professor Jeremy Siegel notes, Trump has closely tied his success to the stock market, making it a key factor in his decision-making process.

Checks and Balances in the Trump Era

The traditional checks and balances in the U.S. government—Congress, the judiciary, and the media—have, in many ways, been less effective in restraining Trump’s actions during his second term. A Republican-controlled Congress has largely acquiesced to his wishes, and the judiciary, stacked with conservative appointees, has not yet shown a willingness to challenge his authority. The media, often a powerful external check, has been dismissed by Trump as “fake news,” further eroding its influence. However, the markets have stepped into this power vacuum, serving as an unofficial check on Trump’s policies. The swift and decisive reactions of investors to his tariff announcements demonstrate the markets’ ability to impose consequences on his actions.

The Bond Market: A Powerful Ally and Adversary

While the stock market has been a visible indicator of Trump’s policies, the bond market may play an even more critical role in shaping his administration’s agenda. The U.S. government’s $36 trillion debt requires constant refinancing, making the bond market a crucial player in the nation’s economic health. A cautionary tale from across the Atlantic—the short-lived premiership of Liz Truss—illustrates the dangers of ignoring the bond market. Truss’s tax cuts and borrowing plans led to a financial crisis in the U.K., forcing her to resign. While it’s unlikely that Trump would face such an extreme outcome, the bond market’s reaction to his policies could still have significant consequences. The message is clear: the entities that buy and hold U.S. government debt care deeply about fiscal responsibility and the rule of law.

Economic Challenges and the Road Ahead

President Trump’s administration is currently benefiting from the strong economic foundation built during the Biden years, which saw average GDP growth of 3.6% from 2021 to 2024. This solid economic performance has provided Trump with a degree of flexibility as he navigates his second term. However, challenges remain, particularly in the form of high mortgage rates and persistent inflation. The recent surge in Bitcoin prices, which has since retreated, also highlights the volatility of the current economic landscape. As the administration moves forward, the markets will continue to serve as a barometer of its success. If Trump encounters a major economic crisis—similar to the 2008 financial crisis—the markets will likely play a decisive role in shaping the government’s response.

Markets as a Mirror of Leadership

The relationship between President Trump and the financial markets is complex and multifaceted. While Trump has often clashed with traditional checks on his power, the markets have consistently emerged as a force he cannot ignore. The swift reactions of investors to his tariff announcements and the broader trends in the stock and bond markets serve as a constant reminder of the interconnectedness of politics and economics. As the administration navigates the challenges of the next four years, the markets will continue to be a key player in shaping Trump’s agenda. Whether through the ups and downs of the stock market or the vigilant scrutiny of the bond market, the financial world will remain an essential check on the president’s power—and a mirror reflecting the success or failure of his leadership.