Trump Tariffs - What it could mean for Investment Strategies

This quarter we are not going to make any specific suggestions on where might be a good place to look at! This is the first time for many years that we are not going to do this but instead we are going to focus on "Trump Turmoil", the biggest disruptor of both Financial Markets and Non US governments. We are going to focus on a number of issues, firstly what do we think is his overall plan. You might have seen or heard of the Mar-a-Lago Accord?

The "Mar-a-Lago Accord" is a proposed economic strategy by the Trump administration aimed at restructuring the global monetary system to benefit the United States.The plan's primary objectives are to weaken the U.S. dollar to make American exports more competitive, restructure national debt by converting existing Treasury securities held by foreign creditors into ultra-long-term bonds (e.g., 100-year bonds), and use targeted tariffs to compel trade partners, particularly China and Europe, to participate in this new framework.

Key instruments of this plan include imposing tariffs on imports from countries that do not implement policies to strengthen their currencies against the dollar and creating a sovereign wealth fund dedicated to accumulating foreign currencies, thereby exerting additional downward pressure on the dollar.Additionally, the plan involves exchanging existing U.S. public debt for new, longer-term instruments, such as 100-year Treasury bonds, to alleviate short-term fiscal pressures and contribute to the rebalancing of global monetary flows.

While the plan aims to revitalize U.S. manufacturing and address trade imbalances, it carries significant risks, including potential inflation from increased tariffs and diplomatic tensions arising from pressuring allies to absorb U.S. debt in exchange for continued military protection.Critics argue that such financial engineering could undermine confidence in U.S. Treasury securities and destabilize the global financial system.

Overall, the "Mar-a-Lago Accord" represents a bold attempt to reshape international economic relations in favour of the United States, but its implementation could lead to substantial economic and geopolitical repercussions.​ 

The big question is can he persuade any government to bend to his wishes? We think it will take some time to get any country to accept these extreme ideas however in the meantime what do the imposition of these tariffs from the 2nd of April ( His liberation day) mean?

The Impact of Large-Scale U.S. Tariffs on the American and Global Economy

The imposition of widespread tariffs by the United States would have far-reaching effects on both its domestic economy and the global market. While tariffs are often used to protect domestic industries, their large-scale application comes with significant economic consequences.

 

Impact on the U.S. Economy

 

Potential Benefits

1. Boost to Domestic Industries – Higher tariffs make imported goods more expensive, encouraging consumers to buy American-made products, which could benefit local manufacturers.

2. Increased Government Revenue – The tariffs themselves generate revenue for the government, which could be allocated to infrastructure, public services, or debt reduction.

 

Long-Term Challenges

1. Higher Consumer Prices – Since many industries rely on imported raw materials, the increased costs from tariffs will likely be passed on to consumers, leading to inflation.

2. Retaliatory Tariffs – Trading partners such as China and the European Union may impose their own tariffs on American goods, harming U.S. exporters, particularly in agriculture and manufacturing.

3. Supply Chain Disruptions – Many American businesses depend on global supply chains. Tariffs could force companies to shift production, increasing costs and reducing efficiency.

4. Slower Economic Growth – Rising costs, reduced exports, and business uncertainty could hinder investment and slow economic expansion.

 

Impact on the Global Economy

1. Trade Tensions and Uncertainty – A large-scale U.S. tariff policy could trigger retaliatory measures from other countries, escalating into a global trade war and creating economic instability.

2. Slowdown in Export-Dependent Nations – Countries that rely heavily on exports to the U.S., such as China, Germany, and Mexico, could experience reduced demand for their goods, potentially leading to economic downturns.

3. Currency Fluctuations and Market Volatility – In response to tariffs, some nations may devalue their currencies to maintain export competitiveness, leading to global financial instability.

4. Disruptions in Global Supply Chains – Many industries, including technology and automotive manufacturing, depend on complex international supply networks. Tariff-driven disruptions could lead to inefficiencies and increased production costs worldwide.

 

Conclusion

While tariffs can provide short-term protection for domestic industries, history has shown that widespread tariff policies often lead to inflation, trade retaliation, and economic slowdowns. The risks associated with a large-scale tariff strategy, including global instability and supply chain disruptions, may outweigh the temporary gains for the U.S. economy. A balanced approach, including strategic negotiations with trade partners, may be a more effective long-term solution for sustaining economic growth.

Impact on Global Stock and Bond Markets

Short-Term Impact (0-6 Months)

 Stock Market Volatility – The immediate market reaction would likely be sharp declines in global equities due to uncertainty and fears of a trade war. Investors may pull out of riskier assets, triggering sell-offs.

 Bond Market Rally – Investors would likely flock to safe-haven assets like U.S. Treasury bonds, pushing bond prices up and yields down.

Key Drivers:

• Uncertainty about retaliation from major economies.

• Higher costs for businesses, impacting corporate earnings.

• A rise in safe-haven demand, benefiting bonds and gold.

 

Medium-Term Impact (6 Months - 2 Years)

 Global Stock Market Weakness – If trade tensions persist, companies reliant on exports (tech, manufacturing, agriculture) would face declining earnings. The S&P 500 and other major indices may experience prolonged weakness.

 Corporate Bond Market Strain – Higher input costs and declining revenues could lead to increased defaults, especially for companies with high debt exposure.

Key Drivers:

• Slower global growth, reducing demand for equities.

• Rising inflation from higher tariffs, forcing central banks to raise interest rates.

• Debt-laden companies struggling with lower profit margins.

 

Long-Term Impact (2+ Years)

 Stock Market Realignment – Some sectors (domestic manufacturing, energy, defense) may benefit, while globalized industries (tech, automotive, consumer goods) could see lasting declines.

 Higher Bond Yields – Over time, if inflation remains high, central banks might hike interest rates, leading to falling bond prices and higher yields.

Key Drivers:

• De-globalization, leading to structural economic shifts.

• Companies adjusting supply chains, increasing production costs.

• Potential stagflation (low growth + high inflation).

If you wish to discuss these or other ideas please get in contact with us.

contact@anglo-swissadvisors.com