The Trump Tariffs Controversy and Your Money

Well that escalated quickly.

A chaotic policy

President Trump’s tariffs are affecting just about every part of the global economy – including your money.

It’s spread fear on the high street. The British Retail Consortium reported that footfall was down 5.4% in March, thanks to a late Easter. Now the BRC warns tariffs could hammer retailers further.

Over the pond, the American central bank chair says tariff policy will, “move us away from our goals … [towards]… higher inflation and slower growth.” Even Fox News admits that American small businesses, “cannot withstand this chaos and blunt-force policy.”

Large technology companies have seen slumps in share prices – between 1 and 14 April, Dell tumbled by 7.4%, Hewlett Packard by 8.7%. Almost every major equity index has seen substantial falls.

To give you an idea of the impact on investment markets, can I show you the Vix? This is an unusual index. It doesn’t measure share prices; it measures how much those share prices are jumping around. High is volatile – as in nervous markets – low is normal.

You can see below that the current spike is bettered only by Covid and the financial crisis. It seems hardly worth mentioning those two were unplanned, unwanted shocks.

Bifurcated outcomes 

You may know the above already. Indeed, you may be assessing the impact on your own organisation. So, let’s cast our minds forward: It seems the two most likely outcomes are the tariffs will go away at some point or they’ll stay in some form.

They might go away because we know that the holder of the Oval Office likes deals. Plenty of commentary has also drawn parallels between him and medieval kings, mafia bosses and autocrats. The tariffs might be a way of exerting leverage, of drawing out expressions of fealty and cementing power. They are a means to an end. And, when that end is achieved, the tariffs could disappear.

If this is the case, we are likely to see some return to normality. American stock markets will continue to dominate the world. They currently make up 64% of global markets. It’s hard to see this tilting substantially in the short term. After all, are Chinese companies going to surge past Apple? Germany’s Volkswagen might be Europe’s largest company by revenue – but its $348bn only just gets it into America’s top ten.

It’s reasonable to expect American decline in two further metrics – both vital and less visible. The US Dollar is not the behemoth it once was. It’s still likely to remain the world’s reserve currency (what other choice is there?) but reduced global confidence in American stability will hurt the dollar.

American government debt has already been hurt. Yields on US Treasuries (which move inversely to their price) have spiked. In other words, they’re worth less and the American government must pay you more to compensate you for the risk of holding them.

None of this is great – but it’s manageable.

Are tariffs here to stay? 

The other scenario is that tariffs remain in some form. We’ve seen their arbitrary arrival. Who’s to say such arbitrariness doesn’t stick around – and we end up with knee-jerk policymaking over the course of this presidency?

As the Economist newspaper observed as early as 5 March, “Keeping abreast of Donald Trump’s utterances on tariffs, from actual announcements to vague threats, is a dizzying task.”

If the only certainty is uncertainty, at least from the US, we might see that nation diminish in importance. The post-Brexit UK was eased out of just about everything European: from ferry routes to university collaborations, policymaking to foreign direct investment.

Britain matters less in the world – maybe America will too. Decline happens to every powerful nation or polity.

All of the above could affect your money. We just don’t know exactly how.

But what we do know is that, for about the last hundred years, financial markets have acted as an up escalator for your money. That period held far worse events than we’ve had this year.

Moreover, if you look at just about any chart of any market over at least ten years, it starts in the bottom left and ends up much higher up on the right. Some charts need their vertical axis altered or they’d punch through the ceiling.

We read the same news as you – and sometimes wonder if it’s different this time – but, if we set aside our emotions, look at the facts and stop worrying about the short term, we can feel much better about our money. And we always encourage you to take the same approach.

If you’re at all concerned about what’s going on, please give us a call. We know how important peace of mind is – and it’s our job to do our utmost to give it to you. We’re on 020 7467 2700 and hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.