Global finance upended by Trump tariff reckoning few saw coming

This is not what global financiers had in mind when they placed their bets on Trump 2.0.

Less than 100 days into the new US administration, bankers from Wall Street to Shanghai’s Pudong and the City of London are bracing for soured loans, canceled deals, forfeited fees — and perhaps threats to their own jobs. Credit markets are paralyzed, while mergers and initial stock offerings are being pulled amid fears of recession.

Every major US bank is down at least 12% this month amid concern about recession and what it might mean for loan losses and trading revenue. In Europe, the main issue is the potential need to set aside extra funds to cover bad loans. Among the most-exposed lenders on the continent are HSBC Holdings Plc, Standard Chartered Plc and BNP Paribas SA, according to Bloomberg Intelligence analyst Philip Richards.

Hedge fund managers are licking their wounds, with Goldman Sachs Group Inc.’s global fundamental long-short hedge fund clients down 4.7% over two days through Friday. That’s after the largest day of selling in global equities that Goldman’s prime brokers had ever seen.

It wasn’t supposed to be this way for Wall Street firms, whose expectations for a resurgence of dealmaking sent bank stocks soaring after Donald Trump’s November election win. Now they’re shelving billions of dollars of deals, prompting JPMorgan Chase & Co., Goldman Sachs and Bank of America Corp. to consider lowering internal revenue projections for their advisory businesses, and possibly setting up job cuts in the second half if the environment doesn’t improve.

Predictably unpredictable

“You have this situation where a predictably unpredictable leader of the free world did something that was well-flagged and anticipated, but did it in such a way that was indiscriminate and unprecedented and broader and deeper than anybody expected,” said Steven Fine, chief executive at UK investment bank Peel Hunt. “So for us, this is the deck of cards you’ve been dealt, you’ve now gotta deal with it.”

This includes the possibility that a recession is already here. That’s what chief executives are telling Larry Fink, head of the world’s biggest asset manager, BlackRock Inc., who relayed the dour outlook on Monday at the Economic Club of New York. There’s also a stunned realization on Wall Street of its diminished sway over a president and his Make America Great Again supporters at a time when the US investor class is pretty narrow — the top 10% owns the bulk of all of the stocks.

Their plight received little support from Scott Bessent, the former hedge fund manager who’s now Treasury secretary. “What’s happening with the market, I’d say it’s more a Mag-7 problem” — referring to the cohort of tech-oriented big stocks — “and not a MAGA problem,” he told Tucker Carlson after last week’s turmoil. He dismissed the almost $10 trillion wipeout as something that would barely register on a long-term chart.

The deepening selloff nevertheless has started to draw dissenting views from Wall Street executives, including some of Trump’s supporters. Pershing Square Capital Management’s Bill Ackman said in an X post the new trade regime is a “mistake” and that a 90-day pause was needed to look at the US’s “historically unfair global trading position.” Investment manager Stanley Druckenmiller said he’d been “abundantly clear” that he didn’t support tariffs exceeding 10%.

JPMorgan Chief Executive Officer Jamie Dimon, who didn’t endorse Trump, warned against what he called a potentially “disastrous” fragmentation of America’s long-term economic alliances and urged a quick resolution to the uncertainty.

Wall Street executives who’ve supported Trump or were excited about his presidency are in disbelief about why he’s risking a trade war, according to Tom Glocer, Morgan Stanley’s lead independent board member.

“This group of people — who are used to being inner-circle relevant people, and consciously work to preserve access and some impact — were startled, surprised and ultimately very disappointed that on the one issue which is tipping the world into recession, there was not going to be any influencing,” Glocer said.

Down in the financial trenches, hedge funds had been reducing risk heading into April and there has been little panic selling, according to one person with visibility into the industry, who asked not to be identified discussing private matters. Some leaders including BlackRock’s Fink said this could be a buying opportunity.

While Ken Griffin’s Citadel was among hedge funds that lost money last quarter, he’s since been encouraging his teams to take advantage of the disruptions, urging them to “play offense.” Ackman in his post said his fund and investors will be “buyers of great businesses at highly discounted prices.”

Financial shares saw some of the biggest selling by asset managers after the tariff announcement last week, according to John Flood, a Goldman Sachs partner and trading specialist, but the picture may be more nuanced for the large investment banks. Typically, trading arms do well in times of heightened volatility as clients seek hedging and other strategies. The Goldman Sachs trading desk saw a “9.5 out of 10” on activity levels last Thursday, according to Flood.

Citigroup Inc. said last month that first-quarter trading revenue rose by mid-single digits, while JPMorgan Chief Operating Officer Jennifer Piepszak in February said trading and investment banking revenue could both rise more than 10%.

That was before the uncertainty out of Washington dashed hopes of a resurgence for dealmaking and fees — and spurred concern about job cuts. Even before this week, UBS Group AG had begun asking senior investment bankers to draw up lists of employees who could be included in potential cutbacks, according to people with knowledge of the matter. They asked not to be identified discussing information that isn’t public.

While Bessent, Commerce Secretary Howard Lutnick and senior counselor Peter Navarro have stuck with Trump’s stance, signs of dissent were appearing from quarters other than Wall Street.

Among them was Ted Cruz, the Republican senator from Texas who warned last week of a potential “bloodbath” in next year’s midterm elections. On Monday, he urged Trump to heed Elon Musk, the billionaire co-founder of Tesla Inc., who said over the weekend he hoped for an eventual “free-trade zone” between the US and Europe.

And a false report — Trump was purportedly considering a 90-day pause on tariffs — nevertheless gave a real-world preview on Monday of how powerful a resolution might be. Within minutes, stocks erased a 4% loss and swung to a 3% gain — only to fade back into red numbers when the White House said peace in the trade war was not at hand.

(With assistance from Jorge Zuloaga and Adelaide Changole.)