US President Donald Trump’s persistent harassment of the Federal Reserve came to a head recently with his attempt to fire Lisa Cook, the first Black woman member of the Fed’s Board of Governors. Since attacks on Fed independence strike fear into the hearts of economists, one might expect them to rattle markets, too. After all, financial returns generally benefit from a widely shared perception of a stable, credible monetary policy, which itself depends on monetary authorities’ institutional separation from elected officials.

Yet markets have remained relatively calm despite a wildly volatile tariff schedule, drastic cuts to federal research funding, a crackdown on immigration, and attacks on independent data-gathering and policymaking institutions. While many features of Trump’s agenda should concern those who hold capital, giving them strong incentives to mobilize and push back, we have seen very little resistance from big business interests. Why?

As someone who studies international political economy and financial-market actors, six possibilities occur to me. The first explanation is motivated reasoning. Perhaps firms and financial markets simply do not want to believe that Trump is serious about following through on his most extreme proposals. Those pursuing the TACO (“Trump always chickens out”) trade have largely been vindicated in their bet that Trump’s most damaging tariffs would be short-lived or shot through with carve-outs. Why jump ship if it is all bluster?

A second possibility concerns market participants’ ideology. Holders of capital may genuinely believe that most government spending on things like research and public health is wasteful, that regulation is uniformly burdensome, and that higher education is a cesspool of socialist indoctrination. If so, they would be fine with Trump taking an axe to them all.

Moreover, this ideology may be buttressed by firms’ short time horizons, which points to a third explanation. While dramatic cuts to federal research funding will obviously harm America’s long-term economic competitiveness, corporate C-suites are not exactly filled with long-term thinkers. Shareholder capitalism — the dominant paradigm — leads firms to discount such future costs. If firms’ stock prices are well served by quiescence or overt obsequiousness to Trump, the long-term costs become a can that can be kicked down the road.

A fourth possibility is that our assumptions about firms’ preferences for certainty, economic stability and policy credibility are simply wrong. Not only can some market players capitalize on trading volatility, but, beyond that, the rise of a plutocratic, personalist regime in the US may bolster Big Business’s confidence in its ability to secure tax cuts and favorable regulation and enforcement. In this context, the pervasive uncertainty and chaos incited by Trump becomes a small price to pay for access to the king.

A related explanation concerns firms’ incentives to unite against the king. Collective mobilization is hard even when there are strong motives for it. If individual firms believe that they can extract more valuable favors or concessions from the regime unilaterally, they will view collective lobbying as being not worth it — or even as running counter to their own narrow interests. Trump has routinely singled out individual firms for condemnation and has already wielded the full force of the executive branch against law firms, universities, news organizations and private companies. While some may be silent in the hope of securing concessions, others may be driven by fear of reprisal.

A final reason relates to how markets process information. As my own research shows, market-risk and valuation models tend to deal poorly with external shocks, relegating them to the unknowable tails of the distribution when considering future scenarios. As the Nobel laureate economist Paul Krugman notes, “Markets act as if everything is normal until it’s blindingly obvious that it isn’t.”

Moreover, as John Maynard Keynes and, more recently, Nathan Tankus have argued, markets don’t synthesize information as much as the conventional wisdom would suggest. Traders respond less to events than to how they expect others to respond to those events, and this dynamic may be introducing dramatic disjunctures into how markets perceive and price the risks of Trump’s policies.

These explanations are, of course, not mutually exclusive. And firms’ capital and ownership structure, industry, size and degree of integration in global value chains shape their willingness to push back against economically damaging policies. Most likely, some firms are quite confident in their ability to curry favor with the Trump administration in exchange for their preferred policy, whereas others are much more concerned about Trump taking to Truth Social to call for a boycott against them.

But despite firms and markets’ willingness to gamble on short-term gains over long-term costs, no one should be under any illusion: Those long-term costs are coming.

Erin Lockwood

Erin Lockwood is an assistant professor of political science at the University of California, Irvine. The views expressed here are the writer’s own. — Ed.

(Project Syndicate)

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