Could Trump’s tariff scheme be a real-life ‘Hudsucker Proxy’?
One of my favourite movies of all time was a 1994 commercial flop. A comedy directed by the otherwise hugely successful Coen Brothers. The Hudsucker Proxy follows Norville Barnes, a naive young man from Muncie, Indiana, who arrives in New York City with big dreams and an invention. Barnes lands a low-level mail-room job at Hudsucker Industries just as the company’s founder, who is also its president, commits suicide by jumping out of a window.
The plot turns unexpectedly when the Hudsucker Chairman, Sidney J. Mussburger, played by Paul Newman, leads a board-approved scam to crash Hudsucker’s stock price by installing an incompetent fool as the new company president (Barnes), and to eventually buy the stock back cheaply.
Did the Hudsucker Proxy inspire Trump’s tariff plan?
One admittedly conspiratorial explanation for Trump’s experimental Tariff War is that crashing the economy is a deliberate plan to bring interest rates down and render cheaper the refinancing, or terming out, of a significant proportion of U.S. debt due at the end of the year. Some commentators go one step further, suggesting the stock market crash is a Hudsucker-Board-like scheme to ultimately enrich Trump’s friends and allies.
The U.S. national debt stands at over US$36 trillion, with a significant estimated portion – around US$9 trillion – maturing later this year and requiring refinancing. Refinancing means issuing new debt to pay off the old, and the cost depends heavily on prevailing interest rates, particularly the yield on U.S. Treasury securities like the 10-year note. Higher yields mean higher borrowing costs, increasing the annual interest burden (already projected to hit nearly US$1 trillion in 2025). Lower yields, conversely, reduce those costs, saving billions over time and helping to achieve part of Scott Bessent’s ‘3-3-3 Plan’.
Tariffs – a tax on consumers of imports – can disrupt economic activity – slowing growth, raising prices, and spooking markets. A slowing economy often prompts investors to shift from risky assets (like stocks) to safe havens (like treasuries), driving up bond prices and pushing down their yields. Lower interest rates are also necessary to support an ailing economy.
As yields drop significantly, the Federal Reserve might also cut its benchmark rates to stimulate growth, further lowering borrowing costs. The conspiracy suggests Trump could be using tariffs to engineer this slowdown intentionally, betting that short-term economic pain (a stock market dip or even a recession) would force rates down, allowing the government to refinance its debt more cheaply and secure long-term fiscal relief.
Could it work?
On Wednesday Trump announced a 90-day pause on tariffs for most countries except China, whose tariffs he raised to 125 per cent. Prior to this announcement the tarrif’s included a 10 per cent blanket tariff on all imports, 54 per cent on China, and 25 per cent on Canada and Mexico (announced in early 2025) – which will raise costs for businesses and consumers. This can reduce spending and investment, slowing GDP growth. Goldman Sachs recently cut its 2025 GDP forecast from 1 per cent to 0.2 per cent annualised, citing tariff impacts.
One has to remember that tariffs are imposed on a country’s exports but they are paid by the businesses and consumers of the importing country. This simple fact should not be forgotten despite all the noise associated with tariffs. Trump’s tariffs will either be inflationary for the U.S., or they’ll cause demand to vaporise. Left unchecked, tariffs will cause inflation in the U.S. or a recession, or possibly both – which investors fear most.
Nissan has paused U.S.-bound production in Mexico due to 25 per cent tariffs, while Delta Air Lines slashed profit forecasts by half in March 2025, citing “economic uncertainty.” Such moves signal a growth slowdown that could pressure rates downward.
Meanwhile, economic uncertainty from tariffs has already driven a flight to safety. Since Trump’s inauguration, 10-year treasury yields have fallen from 4.6 per cent to around 4.2 per cent, and have touched four per cent. A deeper slowdown could push them lower – say, to three per cent or 3.5 per cent – as investors pile into bonds.
If growth stalls or fears of a recession are realised, the Federal Reserve might cut rates more aggressively. Indeed, after holding rates steady at 4.25 per cent to 4.5 per cent in March 2025, the Federal Reserve has hinted at possible cuts later this year. A tariff-induced slowdown could accelerate this, aligning with the necessary timing of refinancing.
At 4.6 per cent yields, refinancing US$9 trillion costs about US$414 billion annually in interest. At 3.5 per cent, that drops to US$315 billion – a savings of nearly US$100 billion per year. Over a decade, that’s a trillion-dollar windfall, assuming rates stay low.
And what of the stock market? After Trump’s April 2, 2025, “Liberation Day” tariff announcement, US$5 trillion in stock market value has been lost on Wall Street alone. Consequently, Liberation Day has been renamed Liquidation Day or Obliteration Day.
However, let’s not forget the 2018 trade war saw yields rise initially due to inflation fears, not fall. Plus, the Federal Reserve operates independently; it might not cut rates if inflation persists, thwarting the plan.
Amid the clickbait conspiracy theories, Desmond Lachman, a former Senior Advisor and Deputy Director in the Policy Development and Review Department of the International Monetary Fund (IMF), argues the strategy is improbable, calling Trump’s tariff moves “clueless” rather than calculated. Indeed, it’s worth pointing out that the damage to wealth from the stock market plunge alone is significantly greater than the US$100 billion in interest savings.
But while a deliberate stock market crash risks political backlash and recessions don’t win elections, if Trump plans to remain as president after the scheduled 2028 elections, interim pain will be forgotten and any subsequent recovery or even a boom in capital spending and investment as companies ‘onshore’ manufacturing could boost Republican re-election chances.
The reality is that while a Hudsucker plot is plausible, it is speculative at best. Tariffs could slow the economy enough to lower rates and ease refinancing, and yes, recent market reactions (falling yields, stock sell-offs) offer some circumstantial support. But the immediate cost of a recession is far higher than the distant savings proposed. And, in any case, Trump’s public stance frames tariffs as tools for jobs and trade leverage, not debt strategy, while the outcomes hinge on unpredictable factors.
Finally, it’s worth knowing that the blundering idiot employed as president of the Hudsucker Corporation ends up inventing the Hula Hoop, and the board’s scheme goes pear-shaped. Trump’s strategy could yet do the same.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
