Can the president be persuaded to temper tariff plans?
Two related news stories caught the eye on Tuesday morning. President Donald Trump said he would be open to negotiating with other countries “if somebody said that we’re going to give you something that’s so phenomenal.” The other story was that the high-end Washington, DC property market is taking off, as America’s CEOs all hope to get physically close to President Trump. “It’s a matter of proximity and being here… It’s the ultimate bow to the man in the White House,” according to Tom Daley, a real estate agent in DC.
These two related items show that there is hope the worst of the tariffs can be negotiated down, but with the chimera of President Trump’s personality, nothing can really be taken for granted.
President Trump 2.0 is in control of his own administration. The first time around, he was stymied by his advisers and by convention. He has regained office and knows what to do. He has grabbed the levers of power with both hands and is pushing through his campaign promises and policies. His so-called “Liberation Day” on 2 April, when he announced a package of tariffs, was the most dramatic demonstration that he has those levers firmly in his hands.
President Trump thinks America has been taken in by its global partners. The US acted as a policeman to the world, spent trillions of dollars on other countries’ defence, won the Cold War – all while other countries thanklessly exploited those efforts. Foreigners have “ripped off” America and built huge trade surpluses, throwing millions of US workers out of work. Trump believes that tariffs will help the US bring those lost jobs back.
Moving factories to the US requires time, money, planning, and some certainty around policy. With policy seemingly made up on the hoof, and President Trump sending vague messages that he is open to negotiation on tariffs, uncertainty is mounting. The personal influence of Trump is growing but a race to see who can gain Trump’s ear, scars and all, is not the way to encourage long-term planning.
It therefore seems unlikely that the immediate impact of the tariffs will be the large-scale return of US manufacturing. There is plenty of investment in the US underway with the AI boom, and some reshoring is already happening following President Biden’s 2022 CHIPS and Science Act. This act set aside $280 billion to boost semiconductor research and manufacturing in the US. It led to major announcements from companies like TSMC, Intel, Texas Instruments, and many more that they were investing in US semiconductor manufacturing.
In the meantime, we will probably see some horse-trading over tariffs. The Japanese, Koreans, and Vietnamese have already opened talks with the US in hopes of moderating Trump’s initial tariff announcement, though it is not clear what will constitute a “phenomenal” counteroffer. Some countries may find that any deal they strike involves more than just tariffs – it may include trade barriers such as product standards, exchange rates, greater military spending, and possibly steps to moderate Chinese influence.
There is a lot up in the air now, and the situation is fluid. For instance, overnight the president boosted China’s tariff rate to 104%, and this morning China seemingly signalled its willingness to go blow for blow with the Americans. While the uncertainty around tariffs persists, we will have to endure volatility in all markets – from oil to shares and bonds.
Gradually, though, a clearer picture will emerge, and we will learn to work with tariffs.
The Global Financial Crisis in 2008 and COVID in 2020 taught us that businesses must be flexible, adaptable, and resilient to survive. A crucial advantage of active management is that our fund managers are able to select the very companies most likely to come through this new environment unscathed – or even emerge remoulded. Managers are also able to protect capital through their decision-making, something passive vehicles find much more difficult to do. In rising markets, passive can look overwhelmingly attractive – but it is in environments like these where active management proves its worth.
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