Why Markets Seem to Ignore the Obvious About the US: Six Possible Explanations

Introduction

Despite Donald Trump’s persistent attacks on the Federal Reserve and his aggressive policies, including tariffs, cuts in federal funding for research, harsh immigration measures, and assaults on independent data-collecting and policy-formulating institutions, the markets have remained relatively calm. This raises the question: why so little resistance from large corporate interests?

Six Possible Explanations

1. Motivated Reasoning: Businesses and financial markets might simply refuse to believe that Trump is serious about implementing his most extreme proposals. Those betting on “Trump Always Caves” (TACO) have largely been vindicated, as the most damaging tariffs have turned out to be fleeting or riddled with exceptions. Why abandon ship when it’s all just bluster?
2. Ideological Alignment: Capital owners may genuinely believe that much public spending in areas like research and public health is wasteful, regulation is a burden, and higher education is a socialist indoctrination machine. If so, they’d welcome Trump’s cuts to all of these.

Short-term Focus of Corporations

The drastic cuts in federal funding for research will undoubtedly harm the long-term economic competitiveness of the US. However, corporate executives aren’t known for their long-term vision. Shareholder capitalism, the dominant paradigm, encourages companies to dismiss these future costs. If Trump’s quietude or obsequiousness benefits stock prices, long-term costs become a problem that can be postponed.

Misinterpretation of Business Preferences: Our assumptions about businesses’ preference for certainty, economic stability, and political credibility might be incorrect. Some market actors may not only benefit from stock market volatility but also see a plutocratic, personalist regime in the US as an opportunity to secure tax cuts and favorable regulation and enforcement.

Incentives for Businesses to Band Together Against the King

Collective mobilization is challenging even when there are solid reasons for it. If individual businesses believe they can secure more valuable favors or concessions unilaterally from the regime, they may see collective pressure as not worthwhile—or even counterproductive—to their interests. Trump has consistently singled out specific companies for condemnation and has already wielded executive power against law firms, universities, media outlets, and private companies.

Market Information Processing: My research shows that market risk models and valuation models often mishandle crises, relegating them to the unknown extremes of future scenarios. As economist and Nobel laureate Paul Krugman notes, “markets act as if everything is normal until it’s clearly not.”

Moreover, as argued by John Maynard Keynes and Nathan Tankus, markets don’t synthesize information as widely believed. Operators react less to events and more to how they expect others to respond, potentially introducing stark disjunctions in market perception and valuation of Trump policy risks.

Conclusion

These explanations are not mutually exclusive. A company’s capital structure, ownership, sector, size, and integration into global value chains influence its willingness to oppose economically harmful policies. Some companies may trust their ability to curry favor with the Trump administration for their preferred policy, while others fear Trump’s resort to Truth Social to incite a boycott against them.

Despite the readiness of businesses and markets to bet on short-term gains over long-term costs, no one should be fooled: those long-term costs are coming.

About the Author

Erin Lockwood is an adjunct professor of Political Science at the University of California, Irvine.

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