Market shock has framed US tariff policy, Nouriel Roubini says

The market shock has framed tariff policy in the US economy, CEO of New York-based macroeconomic consulting firm Roubini Macro Associates Nouriel Roubini said at the 2nd Azerbaijan International Investment Forum (AIIF 2026) in Baku, Report informs.

According to him, there are at least two different groups of factors explaining the resilience of the global economy and markets to these major negative aggregate supply shocks:

"First is market discipline. Second, in my view, are the supportive factors coming from artificial intelligence and the technologies of the future, that is, favorable conditions. I would like to make another point regarding market discipline. On April 2 last year, the average US tariff rose from 3% to 30%. If this figure had remained at 30%, there probably would have been a recession in the US and globally, as well as a surge in inflation. Instead, however, economic growth last year was as good as it was in 2024, while inflation barely changed."

"What happened? Two weeks after April 2, the S&P 500 index fell 15%, the Nasdaq fell 20%, the yield on 10-year Treasury bonds rose by 80 basis points, and high-yield bond spreads increased by 150 basis points. As Trump also began criticizing the Federal Reserve, the dollar started to lose value sharply. It was precisely at that point that President Trump realized that this market shock would lead to a financial shock, which in turn would lead to a US and global recession. As a result, his political plans and the midterm elections could have ended in failure. As we know, although the US president can be impulsive, he is not irrational, and he realized that he needed to step back. Some called this a retreat, and he instructed his advisers to conclude trade agreements to reduce those tariffs. Do you know what happened? Those tariffs fell from 30% to 25%, then to 20%, and then to 15%. Today they stand at 12% and are falling further every day because inflation is high and there is an affordability crisis. Essentially, the process was forced into a framework by market discipline," the businessman added.

According to him, the same thing happened this year:

"The war with Iran began, but after two months, the price of Brent crude settled at around $120, bond yields rose sharply, and the US stock market fell 10%. The November midterm elections were approaching, and he realized that the market shock would lead to serious economic and financial weakening. This could have resulted in a major defeat for him in the elections. Therefore, he was once again constrained and decided to step back. I think market discipline is working."