Consequences of Trump’s tariff policy – The Monday Club
The most recent Monday Club event took place at the fabulous event space of the Swedish-American Chamber of Commerce in Midtown East, New York, in the evening of May 12th. There were about 60 guests at the event.
The speakers were Rebecca Patterson, former Chief Investment Strategist at Bridgewater Associates and Senior Fellow at the Council on Foreign Relations and Tara Hariharan, Managing Director and Head of Global Macro Research at NWI Management LP. Below are the questions and answers from the event.
- Why is Trump obsessed with tariffs?
Hard to say what is in Trump’s mind, but this is deeply ideological for him. Back in 1987 he took out a full-page ad in the New York Times that the U.S. is being ripped off by trading partners and the rest of the world. His belief is still that we are getting ripped off and it has nothing to do with economic cyclical patters. Maybe this thinking is from his real estate day. Trump also thinks he can fix the problem.
2. How does Trump’s tariff policy reshape U.S.-China trade relations?
It is doubtful that the U.S. and China can become good friends given fundamental political and geopolitical differences, but at the same time, the countries are linked to each other economically. It is impossible to imagine a decoupling of the U.S. and China as the countries’ economies are so intertwined and interconnected. They are still close trading partners and economically linked to each other and this will likely continue even though there might be attempts to become more independent for both parties.
2. What are the main benefits and drawbacks of tariffs?
There are some benefits with benefits such as protecting industries in emerging markets, national security importance, protect certain industries like technology, protect local industries and bring in more revenues. Tariff revenues have already increased significantly to fund the deficit. Negative is that tariffs are tax on goods, which means more expensive goods for consumers in the end of the day. There might be supply side import expenses that will bring up the costs for manufacturers, passing on costs to consumers ultimately (cars, steel, aluminum). This might also bring up unemployment and higher inflation. The main concern is inflation. GDP growth will also be impacted negatively by tariffs. Negotiations between China and the U.S. are ongoing and tariffs will remain relatively elevated, currently in a temporary 90-day holding time with 30% tariffs, but eventually with the U.S. treasury secretary indicating a ceiling of average 34% for a future tariff. This might differ depending on products.
4. Will Trump’s tariff policy lead to global de-globalization and split into two blocs, one U.S. led, one China led?
It is not completely certain that supply chains will be separated between the U.S. and China. This is likely not happening as the global economies are too interconnected and countries competing for the same products and there is not enough for two totally separate blocs. There might be a trend to go in that direction, but this will not fully materialize. There will instead be competition and there might be a slow tendency to a China-led bloc and a U.S.-led bloc, but many countries are trading with both countries and this will likely continue also in the future.
5. What will be the impact on the U.S. dollar from the Trump tariff policy?
What is influx with tariffs and trade wars, dollar has been falling, indicating capital flight from the U.S. The reasons of for a weaker dollar, trade and capital flows that are driving the currency down as the capital is not coming into the country at the same rate, are primarily due to uncertainty and global unhappiness with Trump and the U.S. trade policies. Foreign investors are starting to take their money home and out of the U.S. Not only from angry Canadians, but many other countries are angry. Countries are not happy with the trade disputes and will divert capital from the U.S. as they wonder if the U.S. still is a reliable partner. A small change in portfolio say from 70% to 65% means trillions of dollars leaving the U.S. and this is something that should be closely looked at as it is a slow bleed, in particular for the bond market. Institutional investors, in particular in Europe, are diverting funds to other countries and currencies. This is not a flash crash, but it will be a slow process. Does the U.S. want a strong or weak currency? Likely strong, but on the other hand they are also want to export more, which would be helped by a weaker U.S. dollar. The U.S. is still concerned with the Chinese yuan, which according to the U.S. is too weak, artificially so, in order to be more competitive and support Chinese export. There is a risk that a tariff war could become a currency crisis and needs to be looked at carefully. China is currently in deflation and have their own domestic economic struggles and are keen on finding a resolution with the U.S. and certainly want to avoid a currency crisis.
6. How will allies and traditional trade partners (like the EU, Canada, and Mexico) respond to U.S. tariffs?
Trump does not seem to care if you are ally or foe and has lashed out against close trading allies with tariffs. Trump thinks the Europeans are nastier than the Chinese. Europe will be the next target for Trump and Europe will try to defend itself and its industries, in particular technology and automobiles. Vance has mentioned that Europe has to pay more for its military and to lower tariffs for U.S. goods. This seems to happen as Europe are pushing expenses for military higher. Ukraine is another component as Trump might want concessions from Europe and link this to economic matters, like the access to minerals in Ukraine. So far there is no direct trade negotiations between the EU and the U.S., but this will likely come shortly as the Europeans know that this is coming sooner rather than later. More broadly, the Europeans seem to realize that they need to be more independent, both militarily and economically. Trump clearly wants concessions from Europe, not only tariffs, but also related to Ukraine and U.S. corporations.
7. How will tariffs impact emerging markets?
More countries are applying to BRICS and many emerging markets are looking for partners and they might feel they cannot trust the U.S. They would rather be part of BRICS. The speakers mentioned that there are a lot of infighting in the BRICS countries (Brazil, Russia, India, China, and South Africa), China has been taken the lead and the BRICS might not be seen as so developed and not so closely put together. They don’t necessarily work as one unit. India is more U.S. friendly than others. Hard to move away from the dollar short time as the Chinese currency is not a free-floating currency so not really a feasible alternative except for countries like Iran, North Korea which is small and other marginalized countries. China is trying to make as much as possible of the situation and create currency arrangements with partners. There might also be opportunities for emerging markets, in particular in Latin America, from a U.S.-Chinese conflict or high tariffs as they have lower tariffs and can produce cheaper, such as Brazil, India, Malysia, Indonesia and Vietnam. There will be some relative winners and losers in the global trade war and new sets of tariffs and some of the winners will likely be among the emerging market countries. There is no coincidence that the Brazilian stock market is one of the best performing markets in 2025 year to date.
8. Will foreign capital inflow decrease and potentially have a negative impact on U.S. financial stability?
This might be a winning strategy for Trump as he is getting concessions from other countries, like getting Germany to get rid of the debt ceiling, which is good for Germany too as they will invest more. Countries are also looking for U.S. plus one as they will look for alternatives to the U.S. so there might be short-term gains for the U.S., but they might lose trade and partners in the long run as the global market will transform. It is fine for the U.S. to try to change imbalances and create fair trade, but in the process, countries might change behavior over time, trust the U.S. less and change close trading partners. There is also a matter of costs, where costs can get too high in the U.S. and other countries will go elsewhere. This would impact U.S. manufacturers negatively and increase unemployment.
9. How will tariffs impact the manufacturing and the job market?
Manufacturing renaissance that will not be. 13 million people in the U.S. work in manufacturing and more workers are needed. Due to retirements, there are not enough people to do the jobs and about three more million workers are needed. Immigrants were a big part of this, in particular in the construction area, and there is a lack of labor and in particular skilled labor. Set up a new immigration policy that will bring in immigrants legally and orderly and combine this with job training. More manufacturing jobs require more advanced training and education. On could also argue that instead of focusing on bodies and training, focus more on automation, technology and artificial intelligence to make manufacturing more efficient and effective.
10. Will the U.S.-Chinese tariff agreement work?
U.S. will get a lot of promises and concessions from China as they are brilliant at slow walking. But will China live up to their promises? Something will be done with fentanyl and China will buy more eggs from the U.S. So, there will be a deal within 90 days but the implementation is slow and hard to control. They will likely help the U.S. agriculture sector and China will buy more food from the U.S., which will make Trump happy as farmer are a key constituency. Real minerals will also be a part of the discussion and the U.S. will likely try to buy more from China.
11. Why is the stock market still so high?
The economy is still strong and consumption is still high. Mostly U.S. investors are still positive, renaissance for retail investors, a growing segment of the U.S. markets, the foreign investors might pull away slightly, also a record year of stock buy-backs, taking supply out of the market. This could continue also in the future with riskier retail buyers still active and continued high level of stock buy-backs. Expectation is still that the Fed eventually will cut rates. Still uncertainties with tariffs and what will happen after 90 days and with Europe. This uncertainty will slow the economy. Likely front loading with high imports for a while. Intended disruption by the administration but with a purpose. Other actions taken by the U.S. government is linked to the new Department of Government Efficiency (DOGE). DOGE is a good economic sledgehammer example, but at the same time, DOGE has not focused on upgrading the systems and technology of the government. The government is already extremely bureaucratic and inefficient, but in addition to economic saves, they should focus on technology upgrades, instead of only current economic DOGE actions.
12. Ukraine
Trump trying to build peace by bringing in economic aligned factors like critical minerals and business deals. Europe and the U.S. are not really on the same page, and the U.S. will likely go their own way. There are too many views in Europe and too many opinions. Europe might even have to play nicer with Russia and it might even involve more gas flows from Russia to Europe and a rebuilding of the energy cooperation between Russia and Europe. The chances are that we can start thinking of the rebuilding of Ukraine eventually, but it seems to have a lower priority suddenly. Reconstruction of Ukraine will follow eventually though and Trump sees this as a great business opportunity. This will reemerge once Trump has time after his trip to the Middle East.
13. European bond market
U.S. treasury yield term premium will be going higher and there will be more price sensitivity in the market, and higher yield will be demanded by investors. There is not really an alternative to the U.S. treasury market at this point. What could change this would be a harmonized European bond market. This has been discussed for years and it would be a huge market similar to the U.S. treasury market in size. BRICS could also develop something but they member states are too fragmented and will have to formulize a new business model to work closer and more effectively together.