The Million-Dollar Question: Trump's Trade War Leaves Scant Winners in its Wake
Trade conflicts under Trump's administration often result in losses.
President Trump's policies are leaving a trail of destruction through the American economy, yet it's not just the U.S. that's feeling the pinch. The financial markets bear the brunt of these turbulent times.
Trump's predicament with tariffs is not the tariffs themselves, but the relentless seesaw. He recently reinstated certain tariffs on so-called Liberation Day in early April, only to rescind them a week later, at least for 90 days. Leaving little time for negotiations with other nations to achieve "fair trade" - as Trump deems it - in the meantime.
Achieving equitable trade with all partners seems far-fetched, and the reprieve doesn't extend to China, who has faced import tariffs of up to 145 percent. Despite ongoing negotiations between the two economic titans, the future remains uncertain.
In early May, Trump ordered the US Department of Commerce to impose a 100 percent tariff on all foreign films entering the country. Whether this will materialize remains to be seen.
Uncertainty Abounds
Trump's unpredictable nature makes it nearly impossible for both American and foreign companies to strategize even in the short term. This uncertainty likely perpetuates delayed investment decisions, and it's plain as day in the US trade deficit, which surged to $140.5 billion in March, marking a 14% increase from the previous month.
Desperate to skirt rising costs due to tariffs, consumers and companies rushed to purchase imported goods. However, this is a temporary panic. In the long term, tariffs will decrease demand as they inflate prices. This is menacing news for a consumer-led economy like the U.S. And more and more analysts and consumers alike foresee a recession in the U.S. horizon.
The Fed Holds its Breath
Higher prices for imported goods also facilitate American companies to boost their prices. Tariffs incite inflation. In theory, the US Federal Reserve (Fed) should lower interest rates to stimulate the economy, as Trump has demanded. However, rising inflation may prevent the Fed from doing so.
Yet the U.S. isn't the only nation affected by these tariffs. Despite US reassurances to the contrary, there are practically no winners in Trump's trade war. Economic growth losses due to unilateral tariffs on aluminum, steel, cars, car parts, country-specific tariffs, and global import tariffs will be substantial this year.
China's economy bears the brunt of Trump's trade policies more than any other. Although China can cushion the blow through fiscal and monetary stimulus, economists predict a significant slowdown in growth to around 4% in the Middle Kingdom this year.
Even the Eurozone cannot escape US tariffs' fallout. The impact varies greatly among member countries based on their industrial and export dependence. Therefore, Germany and Italy experience greater growth setbacks than France and Spain.
Wall Street's Opinion
Since the beginning of the year, Wall Street has shown its disapproval of Trump's economic policy. Gold, the cautious investor's favorite, has seen an increase in value as a result of uncertainties in the financial markets and a weakening dollar.
The Million-Dollar Question
In this precarious climate, investors should allocate less than half of a $25,000 investment in stocks to minimize risk. They should concentrate more on Europe than the U.S. Apart from the tariff confusion, the inflated values of American stocks argue against a stronger weighting. A greater share of government and corporate bonds should bring stability to the portfolio. Gold is expected to continue gaining popularity from central banks and private investors. Lastly, investors should maintain liquidity to capitalize on potential price drops.
Sources: ntv.de
Relevant Topics
- Investments
- Europe
- Trade Wars
- Recession
- Inflation
- Gold
- Tariffs
- Stock Market
- Federal Reserve (Fed)
- Economic Growth
- The ongoing trade war initiated by President Trump's employment and tariff policies has left many American and foreign companies uncertain about their short-term strategies, leading to delayed investment decisions.
- The unexpectedly high tariffs imposed on imported goods and services, as seen in the case of foreign films, further exacerbate this uncertainty, causing inflation and a potential increase in consumer prices.
- In an attempt to stimulate the economy while addressing Trump's demands, the US Federal Reserve (Fed) may face challenges in lowering interest rates due to rising inflation, which could be a consequence of the increased tariffs.
- The impact of these tariffs is not limited to the U.S., with substantial economic growth losses predicted for nations like China and the Eurozone, particularly Germany and Italy.
- In the face of this precarious economic outlook, Wall Street investors are advised to allocate less than half of their investments in stocks, preferably concentrating on Europe over the U.S. Additionally, they should consider investing in government and corporate bonds, gold, and maintaining liquidity to capitalize on potential price drops.