A New Middle Eastern War Ignites, Markets Swing On Early Bets That Trump Will Chicken Out Again

Though Iran and Israel have never exactly been on friendly terms, the conflict between the two nations had quieted significantly until last Friday, when Israel launched major attacks against nuclear and military infrastructure in Tehran. Iran retaliated. As of Tuesday afternoon, at least 224 people in Iran and 24 people in Israel had been killed.

Donald Trump, in turn, launched a series of media statements and social media posts. “I’m not looking at a ceasefire,” the president told reporters aboard Air Force One. “We’re looking at better than a ceasefire.” When asked to elaborate, Trump indicated that his proposed solution might involve Iran “giving up entirely” and added, “I’m not too much in the mood to negotiate.”

Later, in a social media post directed at Iran’s leader, the president demanded Iran’s “UNCONDITIONAL SURRENDER.”

Israel is justifying its attacks on the basis of Iran moving increasingly closer to developing a nuclear weapon. Trump himself stated (once again on his own cash-grab social media platform), “Somebody please explain to kooky Tucker Carlson that, ‘IRAN CAN NOT HAVE A NUCLEAR WEAPON!’” You might recall that an extensive, years-long negotiation conducted by the Obama administration resulted in a multinational deal with Iran that was indeed aimed at preventing Iran from acquiring a nuclear weapon. Trump unilaterally backed out of this deal in 2018 during his first term, calling it “a horrible one-sided deal that should have never, ever been made” without any real substantive criticisms of its terms beyond the fact that it came about during the tenure of his predecessor.

Meanwhile, the stock market melted down after the outbreak of hostilities on Friday. Monday, though, saw a huge market rally amid signals that Iran wanted to negotiate -– Wall Street got in early this time on the TACO trade, assuming that all it would take to get the United States on board with a peace plan was a marginally cooperative adversary and the hinted appearance of a quick win for Trump.

The euphoria did not last, however, as traders grimly absorbed news of a second American aircraft carrier headed toward the Middle East as well as dozens of additional military jets being positioned within striking distance of Iran. The stock market tanked anew on Tuesday.

Again and again, Trump has made big threats and big promises, then chickened out when he saw the kind of punishment the markets would inflict on him for following through. This approach, pathology, whatever you want to call it, has not worked out so badly in certain instances. For example, when Trump replaced the North American Free Trade Agreement between the U.S., Canada, and Mexico with the USMCA during his first term, making mostly cosmetic changes but claiming a big win after chickening out on his original threat to scrap NAFTA entirely, everything was more or less fine afterward.

Big threats absent real leverage then almost immediately backing down has not worked so well for Trump in other instances. When Trump started a global trade war earlier this year, he quickly declared a truce on the most ridiculous of his tariffs to salvage the markets, but even after months of negotiations and repeated declarations by Trump himself of historic “deals,” we are worse off than when we started. China has more leverage than the United States when it comes to trade, it has a leader who is willing to follow through, and, to quote from the third installment of the “Back to the Future” series, it knows that Trump’s tough talk is no more than “hot air from a buffoon.” Trump will not be able to negotiate us into a better trade position with China.

Now, consider that in dealing with the Israel-Iran conflict, we are not talking merely about shipping products around the world: we are talking about people’s very lives. Every bomb dropped in war creates more new enemies than it kills, making it very difficult to simply pull the plug and walk away once one nation attacks another. Trump is going to chicken out on Iran at some point. The market dip on Tuesday was the dawning realization that by the time he is ready to chicken out, this time, he might no longer be able to. If that happens, we will all have far bigger things to worry about than the stock market.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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