Matthew Lynn

Donald Trump has peered into the abyss. The US President watched the Wall Street meltdown and the global trading system (from which America benefits as much as anyone) start to collapse, and he hit pause. The conventional narrative will be that Trump has blinked, but I think he simply got what he wanted. Yesterday's decision to put a 90-day pause on reciprocal tariffs, while increasing the rate on China to 125 per cent, has certainly come as a relief to the markets. The S&P500 was up almost 9 per cent on the news. Investors can breathe again. It would be easy to argue that President Trump has simply chickened out of the fight. The tariffs were about to trigger a global recession, and the fallout from that would dominate the rest of his time in the White House. It is not worth it.

A Harley-Davidson will cost you a little more in France; Florida orange juice will be more expensive in Germany and American soybeans will go up in price everywhere across Europe. The European Union has decided to start taking the fight back to President Trump with a round of retaliatory tariffs. The trouble is, it is making a big mistake. Sure, we can all understand the desire to stand up to what it sees as bullying. But it is not going to win this battle.  In the wake of President Trump’s decision to impose a 20 per cent tariff on everything the EU sells in the United States, some form of retaliation was probably always inevitable. The bloc has just agreed on counter-measures worth €22 billion with the first round likely to be announced as early as next week.

The FTSE-100 is up by a couple of hundred points. Germany’s DAX has added 400 points, and in Tokyo the Nikkei 225 rose by 6 per cent overnight. After the wild trading ever since President Trump announced the imposition of huge tariffs on all of America’s major trading partners, some stability appears to have returned to the financial markets. Is the worst of the slump over? It is far too early to predict that with any confidence – but there are two reasons for thinking it might be. It remains to be seen how the markets unfold over the next few days. There could well be a bankruptcy or two among some of the hedge funds, one of the crypto currencies may implode, or a bank could run into trouble, and if there are any signs of that kind of stress the market will plunge all over again.

There will be plenty of victims of the crash currently playing out across the global financial markets. A few hedge funds may well fail. The trading desks of the main investment banks will be watching their annual bonuses disappear. And ordinary investors will be nursing some big losses on their investment portfolios. But the most prominent victim might well be the British Chancellor Rachel Reeves. She staked everything on meeting her ‘fiscal rules’ – and it now looks certain her gamble has been lost.  Only a few weeks ago, in the Spring Statement, Reeves reassured everyone that she had made all the adjustments necessary to make sure she stayed within her fiscal rules, and to keep the economy on a stable path.

As it turned out, the only thing Liberation Day was actually liberating anyone from was their money. In the wake of President Trump's imposition of a massive round of tariffs on America’s trading partners the stock market has been in freefall. For the moment Trump is ignoring that. But he won't be able to forever – a bear market is too damning a verdict on his presidency.  You can’t ‘make America great again’ in a bear market Investors, to put it mildly, took one look at the latest round of tariffs, and dumped equities as fast as possible. In the wake of the tariffs announcement, the Dow Jones Industrial Average plunged 1,679 points, or 4 per cent while the S&P 500 sank 274 points, or 4.8 per cent, its biggest one-day drop since the Covid collapse in 2020.

They would restore manufacturing, force trade barriers to be taken down, and allow new industries to be created. There have been various different explanations for why President Trump's new tariff regime made sense. And yet when they were finally revealed yesterday one point was clear. There was no logic. The tariffs were just weird. The big reveal turned out to be a board that flapped around in the wind outside the White House. Donald Trump marked Liberation Day by holding up a placard with a list of countries – each one with a number next to it. The White House has worked out the tariffs it estimates American goods face in each market, and then come up with a retaliatory tariff that it will impose in response. The trouble is, none of it makes sense.

Council tax is going up. Train fares are rising. Broadband will cost more, and so will electricity and water. April opens with a blizzard of price rises that will make it far harder for everyone to make ends meet, especially if they are on a low income. The one compensation is that the minimum wage is going up as well. There is just one catch, however. The UK now has one of the highest minimum wages in the world – and very soon it is going to become painfully clear it will start costing jobs. It is the one statistic the government will be boasting about on Tuesday. The National Living Wage is rising from £11.44 an hour to £12.21, a rise of 6.7 per cent, significantly ahead of inflation, currently running at 2.8 per cent.

If you have had your eye on a bungalow along the Devon coast, a cottage in the New Forest, or a tastefully painted terrace in one of the sea-facing villages in Norfolk, this could be your moment. Many holiday home owners are choosing to sell up to avoid a hike on council taxes. From next week, local authorities will be allowed to charge double the normal rate for second home owners. Average bills are set to rise from £2,280 to £4,560. This crackdown is likely to be popular. After all, who has sympathy with those who own two homes, when many young people are struggling to get on to the housing ladder? Despite the temptation, we should resist joining in the cheering: instead of declaring war on second home owners, why don’t we encourage people to own holiday homes?

WH Smith is opting for the oldest trick in the corporate playbook. It is changing its name. It might have been better to get some new carpets – or at least to freshen up some of the display counters. As the chain's high street shops are sold off, they will be rebranded as TG Jones, whoever the heck he was. Sure, a few nostalgics might mourn the passing of one of the oldest names on the British high street. And yet, the blunt truth is that the brand was already dead – and no one will miss it now.  If you want to buy some over-priced water, or pick up a chocolate orange from WH Smith, they will still be operating at train stations and airports.

It was hardly the message Chancellor Rachel Reeves would have been looking for a day before a Spring Statement which could well make or break her political career. The Governor of the Bank of England, Andrew Bailey, delivered a speech yesterday warning that growth was going to prove very hard over the next five years. The Governor is completely right to emphasise how hard it will be to expand the economy. But he should be making the case for far more radical reforms. If he won't, no one else will. Bailey is staying within the ‘managed decline’ consensus To paraphrase PG Wodehouse on Scotsmen, ‘the difference between the Governor and a ray of sunshine is not hard to detect’.

Tariffs would destroy supply chains and drive up inflation. Elon Musk’s savage cuts would bring the government machine grinding to a halt. And chaotic policy making would drive investors out of the United States. As the Dow, the S&P 500 and the Nasdaq all fell sharply over the last month, there were plenty of factors driving the “Trump Slump,” as it became known on Wall Street. But hold on. Sure, equities have corrected. But right now it looks as if the rout is already over, and the markets have steadied again.  Last week, US stocks finished in positive territory for the first time in a month, chalking up modest gains over five trading days. On Monday, they carried on climbing, with the Dow up by more than 500 points, and the Nasdaq by more than 300.

The pound has not collapsed. You can still trade shares, bonds and currencies in the City of London. And inflation, while still high, at least doesn’t come with ‘hyper’ as a prefix, at least not yet. If the Governor of the Bank of England Andrew Bailey wants to celebrate today's fifth anniversary of taking charge of the UK’s central bank he can at least reflect on a few modest achievements. The trouble is, they are very limited. In reality, Bailey has proved a poor if not catastrophic Governor – and everyone in the City knows it. When Bailey took over, he was the antithesis of his predecessor.

Growth has ground to a halt, manufacturing is collapsing, and the government is desperately scratching around for ways to save some money so it can balance the books. There is not much to make anyone feel optimistic about the state of the British economy right now. Except, that is, for the healthy performance of the UK’s traditional, mid-market retailers. Marks & Spencer and Tesco are both in rude health. Now, John Lewis, which has reported a rise in pre-tax profits of 73 per cent to £97 million, is the latest retailer to demonstrate its ability to bounce back.  After years of steep losses under the hapless leadership of the former civil servant Dame Sharon White, John Lewis has finally turned the corner.