The Trump administration is flooding the public with a never-ending stream of announcements. This approach is strategic and designed to create confusion. The boundaries between fact and fiction are blurring, making it much more difficult to analyse and evaluate Trump's policies.
However, if you ignore all the noise, red lines can be recognised despite the apparent chaos. Firstly, there is Trump himself, who sees himself as a deal-maker and loves the show. He commented on the escalation with Selenski in the Oval Office with: "This is going to be great television". From an economic perspective, Trump is bothered by the US trade deficit and what he sees as the detrimental consequences of the reserve currency, the US dollar. The US trade deficit has steadily increased since the end of the 1970s. In contrast, the opposite trend can be seen in services. Since around 1970, the USA has exported more services abroad than it has utilised services from abroad itself.
For Trump, the trade deficit is an expression of the fact that de-industrialisation is taking place in the USA. This observation is fundamentally correct, as the chart below shows. The proportion of industrial jobs has more than halved since 1980. It is also correct to say that many jobs have moved to China and that many industrial regions in the USA have begun to decline. Vice President J.D. Vance described this decline in his book "Hillbilly Elegy".
Trump wants to re-industrialise the USA. In doing so, he ignores the fact that many of these industrial jobs would have been lost anyway due to the technological structural change and that the US consumer has benefited from low prices. The purchasing power of the poorest in the US would be significantly lower without a globalisation push. Trump sees another problem in a strong USD as a result of the fact that the USD is the global reserve currency. Trump therefore wants to weaken the USD and charge fees for its use (so-called non-interest-bearing century bonds). However, the bond market cannot be ordered around, meaning that such a measure would lead to higher interest costs for the USA and make debt more expensive. For Trump, the means to achieve all these goals are tariffs, "the most beautiful word in the dictionary", as he himself says. Tariffs are supposed to bring about re-industrialisation and make the USA rich. This one-sided view of tariffs has the potential to lead to major upheavals if they are imposed continuously and in a poorly targeted manner.
Last week's announcement of tariffs shows that the Trump administration is serious and that free trade is to be restricted and the trade deficit eliminated by means of hard power politics. The derivation of the alleged tariffs imposed by other countries shows that this is pure power politics. The most vivid example is Switzerland. It is said to levy tariffs of over 60% and is therefore hit with a punitive tariff of a good 30%. The resulting figure suggests that no balanced analysis was carried out here, but that Switzerland's trade surplus with the USA was simply divided by Switzerland's exports to the USA and the result divided by two. The "criminal offence" therefore consists solely in the fact that there is a trade surplus with the USA. With regard to Switzerland, it should also be pointed out that the exemption of pharmacological goods from last week's tariff announcements is probably not a good thing, contrary to what is often reported. It can be assumed that they are part of an ongoing customs procedure and that customs duties will follow here too. The arbitrariness of the whole thing is remarkable and the question will probably arise as to whether it is legally tenable. The USA had the "Trading with Enemy Act" until the Nixon era. Nixon used this law to introduce tariffs based on this emergency right. Congress saw this as an abuse and replaced the law with the International Emergency Economic Powers Act. This legislation restricts the use of emergency powers in connection with tariffs and requires a factual connection between the threat and the measure. However, no immediate help is to be expected from this, as courts work slowly and the fundamental question will arise as to whether the institutions in the USA will still hold.
The whole issue has a major impact on investments. US economic policy has the potential to cause a recession and stagflation. This fear is currently being expressed on the stock markets. At the same time, it can be seen that the rest of the world is trying to organise itself. Europe has the chance to get its act together and form a counter-pool. After the stock market correction, the stock markets in Europe and Switzerland are in a better position than the US stock markets. These were overvalued, which is why the fall was greater. In the current turbulent stock market environment, orientation is difficult. It is not clear which crises are already reflected in prices and to what extent. We therefore believe that short-term timing of investments is not very promising. In our opinion, it is more promising to continue with the defined investment strategy, taking into account broad diversification. Continuing the investment strategy means in particular that shares are bought again in the event of sharp price falls. Diversification also means that we hold property investments and gold in our portfolios. The latter serve as a crisis hedge in uncertain times in view of the continuing rise in debt, now involving the model pupil Germany. The attack on free trade can be countered by geographical diversification. It is quite possible that regional thinking will return and that the USA will become too compartmentalised. Regardless of this, the focus on the domestic market remains an important component. The Swiss economy is also being set back, but can cope with adversity. It has overcome the lifting of the EUR minimum exchange rate floor and got back on its feet relatively quickly after the Covid shock.
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Cover picture: UNSPLASH Natilyn Hicks Photography