US Trade on The Brink - Is a strategy change needed?
Josh Groves
26th March 2025
Written by Josh Groves
Donald Trump’s U.S. presidential victory in November 2024 initially brought a wave of confidence and positivity to U.S. markets. However, what first appeared to be an ideal start has quickly devolved into pessimistic sentiment and an investor's worst fear: uncertainty.
Since his inauguration on January 20th, Trump’s trade policy has been nothing short of aggressive and ruthless. In February, he imposed a 10% tariff on all Chinese imports, which soon after increased to 20%. In March, he introduced 25% tariffs on most goods from Canada and Mexico, alongside a 25% tariff on all steel and aluminium imports.
The economic and geopolitical results so far aren’t favourable for Trump. A key example of this is the performance of European stocks. In 2024, U.S. stocks outperformed European markets by a significant margin. This had perhaps been an annual trend since 2017, but now the results favour Europe. Even more telling is the robustness of the European markets, which remain stable despite the threats of a 25% hike on European imports.
Historically, increased tariffs are associated with negative economic outcomes. Both U.S. consumers and producers are likely to face higher prices and rising costs due to retaliatory measures.
There’s an argument that Trump’s nationalist ideology could protect and encouragethe growth of domestic jobs, while reducing U.S. trade imbalances. But are these arguments convincing in a global context?
After all, Canada is the U.S. largest trading partner. Obliterating relations between the two countries, and several others, may have long-lasting impacts on future trade deals. Early economic data suggests that any potential benefits from Trump’s trade policies may be overshadowed by the diplomatic damage and economic fallout the U.S. is accumulating.
Despite this, it doesn't look like Trump is slowing down. He has planned to unveil a new set of tariffs on April 2nd branded ‘liberation day’. This could accelerate the breakdown of international relations between the U.S. and the rest of the World, and perhaps cement worries of a full scale ‘trade war’.
However, Trump has been inconsistent with his policies, often failing to follow through. Fierce business lobbying has resulted in announced tariffs being rolled back, such as in the case of Mexico and Canada.
This unpredictability is the ultimate nightmare for investors. On one hand, Trump is clearly determined to ramp up tariffs, but on the other, how aggressive can he get away with, is unclear.
The ultimate question dies down to ‘Is he all talk but no walk?’
