Economics

[S]o far markets have shrugged Trump's tariff threat off, apparently in the belief that he won't follow through.

I believe that the only thing that might dissuade him from destructive policies would be a severely adverse market reaction which means that the lack of such a reaction, based on the belief that he won't really do it, greatly increases the probability that he really will.

He's doing it, and investors don't seem to care, at least not that much. I certainly don't think their reaction could be considered "severely adverse," at least not so far. This seems to contradict Krugman's assertion that the lack of severe market reaction to Trump's tariffs, thus far, is a result of investors believing Trump won't follow through. He's following through, they're not overly concerned about it.

Ok, so why aren't they more concerned? My guess is it's because they don't necessarily believe, as Krugman does, that Trump's tariffs will cause "major damage." Are they right, or is Krugman right? Only time will tell, but I'm guessing investors will have to actually see this major damage before they believe it. I don't think we're going to see a severe market reaction in anticipation of the major damage Trump's tariffs are supposed to cause, we will get a severe reaction from investors only when there is major damage for them to react to.