Taking us to the cliff – the psychology behind Trump’s tactics

When US President Donald Trump announced his “Liberation Day” tariffs three months ago, the spectre of world economic apocalypse looked entirely possible. From that brink to where we sit today – with equity markets hitting new highs – isn’t just one for the books. It’s unthinkable.

Trump’s unpopular, unconventional and potentially unconstitutional trade war policies rocked the world order and unleashed chaos in the markets, which soon found he would walk much of it back from most of his extreme positions.

Trump’s TACO trade turns out to be a winner.Credit: AP

The chaos-to-recovery U-turn is only one chapter in the economic fortunes of the Western world, but for now at least we can bank our positive end of financial year returns.

When someone creates havoc or danger, only to play hero or saviour, medical scientists refer to it as the hero complex – a particular branch of narcissism that aligns closely with Trump and much of his behaviour and his trade policies.

What’s known as the TACO trade (Trump always chickens out) is just an outworking of Trump’s hero complex.

Playing chicken with the rest of the globe is another.

The markets have learnt to discount Trump’s ambit positions and recognise that he tends to take us to the cliff before walking back.

Trump was clearly a shock to the system, but what’s become increasingly evident over the past few months is that the world has acclimated to Trump and adapted to his particular chest-beating, hardball style.

World leaders have worked on their game theory, poker faces and negotiating tactics to allow Trump to declare a win, while they survive without too much sovereign damage.

Part of that adaptation has involved leaning into Trump’s need to be admired or employing a kind of vernacular previously unheard in diplomatic discussions.

NATO Secretary-General Mark Rutte’s reference to Trump as the world’s “daddy” after the president used the F-bomb to describe the misbehavior of Iran and Israel is a case in point.

It worked a treat. Trump’s response was to say of Rutte, “I think he likes me. If he doesn’t, I’ll let you know. I’ll come back and I’ll hit him hard, OK? He did, he did it very affectionately, Daddy, you’re my daddy.”

Trump employed the same tactics in his trade deals that we would see in an auction – never divulging what the right price or the right outcome looks like.

The markets have learnt to discount Trump’s ambit positions and recognise that he tends to take us to the cliff before walking back.

They appear to have been collectively dosed with Valium – ironing out some of the extreme fear-based volatility that took hold, particularly in April.

President Donald Trump meets NATO Secretary General Mark Rutte.Credit: AP

In April, investment houses were busy dreaming up new acronyms for trading in Trump-infested markets such as MEGA or “make Europe great again” – a reference to the flow of investment moving away from the US.

FAFO (f--k around and find out) was reported by Reuters to be frequently heard in trading desk conversations to describe the financial market’s volatility and chaos that Trump’s policymaking process has created.

Trading analogies such as being caught in a pinball machine was another that gained a lot of currency during Trump’s early policy jolts.

But the investment bank bosses and hedge fund titans that predicted financial Armageddon a few months back have gone quiet. The short sellers have retreated to lick their wounds.

None of this means that the remainder of Trump’s term won’t be punctuated with shocks, or to say that his policies won’t have a negative slow-burn effect on the US and other world economies.

Economists remain wary of slowing growth and the potential for Trump’s tariffs to re-stoke inflation – both of which could burst the current market euphoria.

But world leaders and markets are adapting to Trump’s playbook – they are learning the dilution ratio of initial stated policy to ultimate agreement.

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