After Work International Line: Are Tariffs and US-Iran Conflict Just Smoke Screens? Trump Softens When Crossing 'Two Red Lines'—Markets Have Read the Wind!

Trade tariffs, US-Iran tensions, and the US fiscal deficit—each appears capable of upending global markets. Yet Rachel Chen, founder of Financial M Square, believes investors are increasingly learning to differentiate between 'big news stories' and events that genuinely alter policy. On the program 'After Work International Line,' Chen notes that over the past two years, markets have gradually deciphered Trump's reaction pattern: whenever key market indicators approach unbearable levels, Trump's policies tend to soften. Once these 'red lines' are crossed, Trump backs down, and negative sentiment is absorbed.

Take tariffs, for example. Chen argues that high tariffs contain multiple contradictions. On one hand, they risk pushing the US into stagflation; on the other, simultaneously reducing both trade and fiscal deficits is extremely difficult. More importantly, if markets begin to lose confidence in the US and Treasury yields rise sharply, Trump cannot afford to ignore financial market reactions. Thus, markets are realizing that tariffs, US-Iran conflicts, or even geopolitical tensions may not be the 'real issues.' The true concerns are: how high will US Treasury yields go? Will oil prices spiral out of control? And when financial markets start to feel pain, will Trump actually hit the brakes?

Trump's Two Red Lines: Treasury Yields and Oil Prices

Chen identifies Trump's first red line at around 4.5% to 4.6% on US Treasury yields. Once yields breach this range, they begin to impact US mortgage rates, corporate financing, and overall funding costs—pressuring the real economy from Wall Street down. She believes that when this line is crossed, Trump will take policy action.

Kevin Warsh, former Federal Reserve governor, left a telling remark: he welcomes a market that learns to 'judge the ball, not the umpire,' after forward guidance fades.

The second red line is $100 per barrel for oil. Chen explains that once oil prices exceed this level, the impact extends beyond financial markets, directly eroding consumer purchasing power and altering spending behavior due to rising energy costs. For Trump, who closely watches economic performance and public opinion, this is a politically unsustainable cost in the long run.

Thus, while the US-Iran conflict appears to be a military and diplomatic standoff, behind the scenes lies a silent negotiation in capital markets. The longer the conflict drags on, the more oil prices, crude inventories, Treasury yields, and corporate financing costs may pull against each other. Chen points out that US crude inventories have dropped to very low levels, and with Treasury yields back above 4.5%, the pressure on Trump in Q3 is rapidly increasing. 'Trump really wants a quick resolution with Iran,' she says.

Faced with soaring oil prices, large numbers of motorcyclists in Pakistan rush to gas stations to hoard fuel. (AP)

US-Iran Talks: Repeated Breakdowns—Is the Real Negotiating Table on Wall Street?

Host Lu Yizhen notes that the US and Iran have 'declared peace talks about 50 times' but repeatedly failed. Rachel argues that markets no longer listen to diplomatic statements but instead watch prices. After Treasury yields climbed again, the US signaled a desire for early talks—this timing reinforces the belief that financial markets are now constraining political decisions.

How long the US-Iran war lasts may depend less on who is tougher at the negotiating table and more on how high oil prices and financing costs the US can endure. Chen describes investors as 'smarter than ever,' now able to identify what truly pressures Trump. Once he softens, markets interpret it as the worst being over and absorb the negative news.

Rachel Chen (right), founder of Financial M Square, appeared on Feng Media's 'After Work International Line,' hosted by Lu Yizhen (left), on the 5th. (Photo by Ko Cheng-hui)

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