Interview: Trump's Customs Chaos: A Storm of Uncertainty Hitting the Markets
- Author: Laura Eßlinger
- Reading Time: Approximately 5 minutes
Customs disarray under Trump: Financial sectors express despair, saying 'Markets on the brink of capitulation' - Customs chaos under Trump's rule: "Stock markets nearly abandon hopes"
Mr. Brzeski, the US courts repeatedly rule against Trump's tariffs, but they seem to swiftly bounce back. Why is there such a muted response from the markets?
I think the markets have grown numb - even the stock markets, which were still on edge over tariff-related news. This indifference is partly due to the legal dimension that's now in play. Before, it was just Trump announcing deals or tariff breaks. This new legal angle is further adding to the desensitization, leaving the stock markets almost apathetic, trying to block out the high-frequency noise from Trump and focusing on a new, long-term trend.
Is this apathony a sign of getting accustomed to Trump's erratic behavior?
Not really. Instead, let's call it surrender. Up until now, we've been trying to decipher Trump's tactics, questioning his strategies and whether his actions fit into a grand plan. That's how both the markets and ourselves have reacted. The current apathy is a mix of desensitization, surrender, and a newfound calmness, with the attitude of: What's the point of speculating about it?
What's the biggest threat lurking behind this customs chaos?
There are multiple dangers here. The first danger is the constant uncertainty and insecurity, which has real-world consequences: slowing investments and consumption. This uncertainty isn't exclusive to the US but impacts Europe as well. The other danger is long-term and structural: eroding trust in the US legal system. This disregard for the rule of law is disquieting, as we witness an open attack on the court by the Trump administration. If a German official were to criticize judges using such derogatory language, it would be unthinkable.
Is the weaker dollar part of Trump's strategy, considering how US imports would become cheaper as a result?
No, it's not intentional. What's been happening all along is not even the weaker dollar, but the sale of bonds and the subsequent increase in long-term interest rates. Trump can't want that. And he definitely can't want eroding trust in the legal system. In essence, Trump has sabotaged his mission to make America great again with this reckless economic policy, uncertainty, and suspicion about the law. With this volatile economic environment, Trump's policies aren't doing much to inspire production and investment in the US.
What are the consequences for Germany in the current state of affairs?
Retail sales for April have taken a hit, indicating that uncertainty is taking a toll on the German economy. Exports are still affected by existing tariffs, with the tariff rate being higher than at the start of the year. This situation suggests that the German export sector will feel the aftermath in the second quarter. The political uncertainty in the US is negatively impacting German investments and consumption in the short term. However, the situation might work in Germany's favor in the medium to long term, as German companies that had been considering investing in the US might choose to invest in Germany instead.
Could this scenario be detrimental to the economy but beneficial for the EU's negotiating position on tariffs?
It's not necessarily a positive turn. With Trump's behavior, it's likely that the more cornered he feels, the harder he'll fight back. The court ruling in New York doesn't render all tariffs illegal, but rather calls for the application of other trade laws. The pressure on sector-specific tariffs such as those on autos, steel, and aluminum will intensify. I don't believe Trump will back down on these issues. I'm not convinced that our negotiating position has improved due to the trade battle. We still have the trade surplus working against us, putting us in a weaker position in negotiations with the US. In my opinion, it'd be in our best interest to find some common ground. We should focus on realistic negotiations and consider reducing trade barriers that benefit both sides.
What would be the ideal scenario: What would make the DAX and European exchanges the happiest?
A new free trade agreement between Europe and the US would send markets soaring the most. However, such an agreement is unlikely to be reached in the near future. A more achievable wishful scenario would be to keep current tariffs at around 10-15% and for Europe to agree to buy more soybeans and liquefied natural gas, which are symbolic issues for Trump. In diplomatic terms, it'd be beneficial to announce that serious negotiations on a new free trade agreement will take place in the coming months and years.
What should investors do now?
Stick to the classic rules: Don't let short-term fluctuations rattle you and have a well-thought-out long-term strategy. This includes diversification to balance country risks. It's anyone's guess where things are headed. Considering the potential that Europe has, each investor must weigh their long-term growth expectations for Europe and the US.
Do you believe the US will recover?
I have my concerns - although this is more of a gut feeling than a solid analysis - that we're in the midst of a fundamental shift. Naturally, the US will eventually regain stability. But I question whether the US will return to being a leading force in free trade and promoting economic growth in the rest of the world, even if the US puts the needs of others first. Going forward, we should consider what the economic drivers of the future will be: AI, for example. The US has a lot going for it in this regard. In the years ahead, the US will likely continue its economic rivalry with China. Europe will have to work hard and take the initiative to avoid falling further behind.
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- Keywords: Donald Trump, Tariffs, Trade Disputes, EU
Findings:
- The long-term economic consequences of Trump's tariffs on EU and US trade relations are complex, encompassing both direct and indirect effects.
- In the long run, EU economic growth could be 0.1 percentage point larger due to trade adjustments and potentially the US-UK trade deal.
- The US-EU trade relationship could experience long-term trade tensions caused by the tariffs.
- The tariffs could lead to higher consumer prices and increased market volatility in the US.
- The overall effects depend on how these tariffs evolve and how trade policies are negotiated in the future.
- In relation to the uncertainty surrounding the US tariffs, it would be prudent for both community and employment policies to consider the potential economic consequences, particularly in terms of investing in the stock-market and finance.
- As the legal challenges against Trump's tariffs progress, it is essential to review and update the employment policy to address any shifts in the job market due to changes in the stock-market and finance.
