With Tariffs, Trump could wage a forever war in trade

President Trump's trade approach is characterized by a willingness to unilaterally impose tariffs and renegotiate or abandon even his own negotiated trade agreements, fostering significant global trade uncertainty. This strategy, exemplified by actions against Canada, Mexico, and threats to Japan, Korea, and the EU, leads trading partners to view agreements as temporary, impacting U.S. businesses and creating a perception of perpetual trade hostilities. The landscape is further complicated by ongoing legal challenges to the administration's tariff authority, ensuring continued volatility and unpredictability in global trade relations.

Analysis

The current U.S. trade policy under President Trump has created a climate of significant and sustained uncertainty, effectively establishing a perpetual state of trade hostility where agreements are viewed as temporary. The administration has demonstrated a clear willingness to unilaterally impose tariffs and renegotiate pacts it previously endorsed, exemplified by the application of steel and aluminum tariffs on Canada and Mexico despite the new USMCA. This unpredictability extends to other key partners, with threats of 25% tariffs leveled against Japan and South Korea after limited deals were signed, and a potential 35% tariff on the EU bloc over a disputed investment fund. According to trade expert Brad Setser, this has led foreign partners to treat any deal as a temporary measure to limit damage, rather than a stable foundation for commerce. The repercussions are tangible, with U.S. businesses reportedly losing contracts in Canada due to deteriorating relations. This environment of "enormous uncertainty," underscored by the pessimistic sentiment signals, is further compounded by a significant U.S. legal challenge to the president's unilateral tariff authority, the outcome of which could fundamentally shift the trade landscape.

Key Decisions for Investors

• Investors should rigorously assess companies with significant international supply chains or high revenue exposure to regions targeted by tariffs, including China, the EU, Canada, and Mexico, as they face heightened earnings risk from unpredictable policy shifts.
• It is critical to monitor the ongoing U.S. legal challenges to presidential tariff authority, as a ruling against this authority could abruptly remove existing tariffs and dramatically alter the outlook for multinational corporations.
• Consider re-weighting portfolios towards domestically-focused firms that are better insulated from escalating trade disputes and the associated supply chain disruptions.
• Anticipate heightened volatility in currency markets, particularly the USD and the currencies of major U.S. trading partners, and evaluate hedging strategies for portfolios with significant foreign exchange exposure.