With his tariff announcements, US President Donald Trump is rattling governments and markets around the world. Our chief economist Philipp Dobbert puts the risks into perspective. He also explains which investment strategy works best amid uncertainty like this.
Even during his election campaign, US President Donald Trump was threatening high import tariffs. An additional tariff on goods from China is already in force. Several more have been announced. Bad news for the global economy?
At the moment, a lot is still up in the air. It is unclear, for example, which announcements will actually take effect, how long they will apply, how affected countries will respond, or which further ones will follow. Trump sees himself as a „dealmaker“. He uses tariff threats as a political instrument. And he is not the only one who deploys trade barriers. The European Union, for instance, is no saint on this subject. A wave of new tariffs and counter-tariffs is, however, a fairly serious risk for the global economy. That said, the sabre-rattling also gives me hope.
The fact that this risk is on the table gives you hope?
Yes, and for a simple reason: politicians who want to be re-elected generally have no interest in economic weakness. Economic growth, greater prosperity and the freest possible global trade are closely intertwined. These connections are no secret. I assume that everyone involved is aware of them. That is what my hope is founded on.
But what happens if tariffs and counter-tariffs do keep spreading?
Whether it's growth impetus from exports or price advantages from imports, such macroeconomic welfare effects would then be smaller, or disappear entirely, in the affected product segments and regions. A spiral of tariffs and counter-tariffs could therefore slow economic growth and fuel inflation.
After the first tariff announcements, the US stock market fell sharply for a while. Wouldn't many US companies benefit if their international competitors had to clear higher hurdles in the US?
You can't say that across the board. At least, there aren't many clear winners straight away here. Imported products often can't easily be replaced by domestic ones. To illustrate the principle: champagne only comes from France. And for many medicines, too, you can't just switch to domestic production overnight.
Even if, for steel and aluminium – which are due to be subject to new US import tariffs from 12 March – boosting domestic production were conceivable: at present the US imports around a quarter of its steel and half of its aluminium. Whether and how the US steel and aluminium industry would benefit still remains to be seen. Building new plants and capacity would, in any case, be a longer-term project.
Meanwhile, carmakers in the US, for example, would in any case have to accept higher costs for their input products. They will probably pass these on to their customers, which is likely to dampen sales. Or the manufacturers accept a lower margin. Neither is a positive impulse for the bottom line. And I haven't even mentioned counter-tariffs yet, which would weigh on US exports.
What does that mean for the stock markets?
As long as the topic dominates the headlines, somewhat stronger swings can occur again and again. The economic chains of cause and effect set off by tariffs are long. Along the way lie many imponderables. Stock markets react very quickly. They anticipate these chains and then correct prices again when expectations change. These swings – first downward, then back up – were on very clear display, for example, when Trump initially announced tariffs on goods from Canada and Mexico, only to suspend them again for 30 days a little later.
If import tariffs reignite inflation in the US, does that also push down bond prices?
Not necessarily. More inflation does mean less room for interest-rate cuts. But expectations of such cuts were already very low even before the tariff announcements. Accordingly, bond prices didn't move particularly strongly in the wake of the first announcements. Whether bonds or shares: a lot depends on what is already priced in. Above all, though, tariffs are just one of many possible reasons why prices rise or fall. Single-cause explanations very often lead you astray.
Nevertheless, new hurdles for global trade are among the important framework conditions for the capital markets. Does the new US tariff policy have consequences for investment strategy?
Diversification is and remains the best remedy against uncertainties of all kinds, in this case too. When exactly will which industry in which country be affected by tariffs? How high will they be and how long will they apply? How will individual companies react, and how will consumers? The list of open questions could go on for a long time. Answers to them remain speculative. A sound investment strategy should avoid such speculation. With a broadly diversified global portfolio, investors capture return opportunities while avoiding unnecessary risks.
