Two countervailing powers from financial markets when dangerous economic policies are implemented: the S&P and long-term interest rates in Italy

Donald Trump is conducting an aggressive trade policy against China and Mexico, and perhaps one day against Europe. But he is taxing products that will have to continue to be imported to the United States, which reduces Americans’ real income, and he takes the risk of retaliation that may weaken US companies: the countervailing power then comes from the fall in stock market indices in the United States, which Trump cannot accept, as it threatens his popularity and US growth, and which will force him to scrap these trade war policies . Matteo Salvini wants to increase the Italian fiscal deficit sharply to boost activity to fulfil his electoral promises (universal income, flat tax); but the countervailing power here is the rise in Italy’s long-term interest rate, which has already forc ed and will again force the Italian government to limit its fiscal deficit. So there is definitely market discipline, via share prices or via interest rates.