The 25,000-Euro Puzzle: Trump's Trade War Leaves Few Victorious
Trade disputes initiated by Trump often lead to more losses than gains.
The roller coaster ride of US President Trump's economic policies is taking a toll on America, with ripples felt worldwide. Financial markets tell the tale.
The rub about tariffs isn't the tariffs themselves but the relentless back and forth. Trump recently resurrected some of the harsh tariffs slapped on during the Liberation Day in early April, yet only for 90 days. This leaves a scant few weeks for the US to hash out "deals" with other nations that align with Trump's vision of fair trade.
It's a long shot that this will work with all trading partners. What's more, the moratorium excludes China, which has been subject to import tariffs of up to 145 percent. While negotiations between the two economic titans are rumored, a resolution remains elusive.
Trump's erratic moves hint that an end to the tariff tussle is uncertain. In May, Trump allegedly authorized the US Department of Commerce to impose a 100 percent tariff on all foreign films entering the country. He aimed to boost domestic film production, a goal yet to materialize.
A Bounty of Uncertainty
Trump's stop-start strategy makes it tough for American and foreign companies to plan even in the midterm. This unpredictability might lead to postponed investment decisions. Trump's capricious policy also sows uncertainty among consumers, as shown by the surging US trade deficit that reached $140.5 billion in March, a 14 percent jump from the preceding month.
In haste, companies and consumers raced to purchase imported goods before they were priced higher due to tariffs. However, this surge could be a short-lived effect. Long-term, tariffs are expected to decrease demand as they inflate prices. For a consumption-based economy like the US, this is a dangerous development, with more consumers and economists anticipating a recession Stateside.
Higher prices on imported goods also give American companies room to raise their prices. Tariffs can spark inflation. In theory, the US Federal Reserve (Fed) should lower interest rates to revitalize the economy, as Trump demands. But inflation might spoil the party.
Yet, the US isn't the sole casualty of these tariffs. Despite the US government's promises to the contrary, this trade war doesn't boast many winners. Losses in global economic growth due to unilateral tariffs on aluminum, steel, cars, car parts, and goods subject to country-specific and global import tariffs will be considerable and will be felt this year.
China's economy is taking a beating, as it finds itself in the trade crosshairs of Trump. While Beijing can lessen the most significant damage with fiscal and monetary policy stimulus measures, a significant slowdown in growth to around 4% is expected in China this year.
Even the Eurozone can't dodge Trump's tariffs. The impact on individual member countries varies greatly, depending on their industry and export dependence. Germany and Italy, for example, stand to suffer larger growth losses compared to France and Spain.
The 25,000 Euro Query
In this precarious climate, investors with €25,000 should tread carefully. Hedge by investing less than half in stocks to lessen risk. Shift focus towards Europe rather than the US. Beyond the tariff turmoil, the still-inflated American stock valuations argue against a bulkier US allocation. Opt for a higher share of government and corporate bonds for stability. Gold is likely to continue benefiting from high demand from central banks and private investors. Finally, maintain liquidity, ready to capitalize on potential price drops.
Further Reading Stocks - The Peer into 2025 Will the upward trend continue, or will it give way to a severe correction? Reinhard Pfingsten has held the position of Chief Investment Officer at the German Doctors' and Pharmacists' Bank since September 2023. Prior to this, he held this position at Bethmann Bank and Hauck & Aufhäuser Privatbankiers.
This publication is intended for informational purposes only and is exclusively for the recipient's use. It does not constitute an offer or solicitation by or on behalf of the German Doctors' and Pharmacists' Bank.
Source: ntv.de
Additional Insights
The Eurozone's economic resilience facilitates its endurance amidst the trade war. While China redirects its exports to Europe due to US tariffs, the EU's position as a trade-surplus bloc exposes it to vulnerabilities in global trade dynamics. Individual Eurozone countries like Germany face specific growth losses, but these effects are partially mitigated by domestic market adjustments. The EU is encouraged to focus on industrial policy to support domestic demand and counterbalance external shocks. Meanwhile, Sweden and Hungary experience more pronounced challenges compared to Germany in the face of the trade war.
- The community policy should focus on providing clarity and stability for American and foreign companies planning their investments, reducing the uncertainty caused by President Trump's erratic economic policies.
- The employment policy should aim to protect domestic industries from the potential increase in prices due to tariffs, while also promoting innovation and competitiveness to maintain demand in a consumption-based economy.
- The finance policy should be prepared to address potential inflation caused by tariffs, either through lowering interest rates or implementing other measures to stabilize the economy.
- In the stock-market, investors should be cautious, hedging their investments to lessen risk, and shifting focus towards Europe rather than the US, given the still-inflated American stock valuations.
- The policy-and-legislation should consider the impacts of tariffs on global economic growth and seek bilateral and multilateral agreements to prevent considerable losses, particularly in countries like China and Eurozone members.
- The political leaders should recognize the interconnectedness of the global economy and the far-reaching effects of trade wars, and work towards finding fair and mutually beneficial solutions to resolve the current trade tensions, improving the overall outlook for economic investments and the stock-market.