“May you live in interesting times” is an often-used quote misattributed as a Chinese saying. We are most certainly currently living in interesting times.
On Wednesday 2nd April 2025, President Trump unleashed a swathe of tariffs on the USA’s trading partners. Rumour has it that he did not want to announce these measures on 1st April for fear of it being misconstrued as an April Fool’s joke!
Make no mistake, this was no knee jerk reaction by President Trump. This announcement was the culmination of deliberate strategic planning by the Trump administration economic advisory team.
The big question being asked is: Why? The answer is complex, yet plain for all to see:
- Manage USA national debt.
- Reset USA industrial manufacturing base.
- Renegotiate USA standing in the global order.
- Reset USA national security.
This represents the practical implementation of Trump’s long stated America First policy upon which he campaigned. The announced measures create an external shock with potentially severe consequences to the global economy. Effectively the USA is abdicating its leadership role in stimulating global free trade and becoming insular in its trade practices.
Managing the current US national debt servicing burden is a huge issue for the incoming administration. This debt was financed with historical low interest rates after the global financial crisis. A staggering $9,2 Tn debt needs to be refinanced in 2025. A 1 basis point drop in financing rates = $1bn saving per year therefore it is imperative that the administration implement strategies to reduce US treasury yields. Tariffs will create in the near term, pressure on US inflation and market uncertainty. Effectively forcing the US Fed into a corner to reduce interest rates.
The announced tariffs only apply to industrial manufactured goods, services are excluded. The aim is to onshore America’s industrial manufacturing base. Effectively forcing the USA consumer to buy American manufactured goods.
How a Tariff Works
Beyond economic parameters, America is seeking to use tariffs to review its geopolitical strategy and relationship with its allies, both existing and potentially new. What we are effectively seeing is economic trade being used as a tool to achieve strategically political ends. It is no secret that the USA sees China as its long-term adversary and seeks to force other country’s to “pick their side”.
Make no mistake, this tariff war game still has a long way to go and we have only seen the first salvo’s being fired. It is no secret that President Trump sees himself as a deal maker and the negotiating will most definitely open to countries adversely affected by the current swathe of tariffs.
What should you be doing with your portfolio and what are we at Activ8 doing?
In the short term, the only certainty is uncertainty! At Activ8 we will continue to monitor macro-economic factors and work closely with our research partners. It is vitally important to take a long term view and ensure that your investment portfolio is appropriately positioned and has a strategy that is aligned to your financial goals.
We have no doubt that in time, equity markets will recover, they always do. The new global order of financial markets will arise, and may be different to the historically model, it normally always is. Our continued philosophy of “Protect and Grow” applies to all clients who give us the responsibility of advising on their portfolios. As Warren Buffet often alludes to in his annual shareholders letter, “we are honoured by your Trust and take our fiduciary advisory responsibilities extremely seriously”, none more so than during these times of market uncertainty and volatility.