Trump’s first month in office: what have we learned?

A “HIGHLY ERRATIC” APPROACH TO TRADE POLICY

Market’s expected Trump’s trade rhetoric to be largely performative. Many business leaders believed that, after all the talk, little would actually change.

But what’s emerged is a highly erratic approach, with trade policy that appears simultaneously active and suspended – one week tariffs are inevitable, the next they are delayed, only for a new set of measures to be announced days later.

For investors, this inconsistency is itself a risk as businesses struggle to plan around policies that change at short notice.

Trump’s first major steps on trade have provided a case study in confusion. Initial threats of sweeping tariffs on Canada and Mexico were abruptly shelved, only for new duties on steel and aluminium to be imposed. These measures, while more limited than a full-blown trade war, still introduce significant uncertainty for global supply chains.

Steel and aluminium tariffs have been justified on the grounds of national security and unfair competition, yet they predominantly target American allies. Canada, which supplies around 60% of US aluminium imports, is one of the biggest casualties – despite being a close economic partner with whom the US shares a free trade agreement.

Canada’s aluminium industry exists largely due to its abundant hydropower, making it a natural low-cost producer. Penalising such trade could distort market efficiency and suggests a shift away from the economic cooperation that has defined global trade for decades. 

TARIFFS MAY NOT SUPPORT US INDUSTRY

From a broader perspective, the US government’s tariffs are unlikely to achieve their intended goal of supporting US industry.

Steel and aluminium are intermediate inputs, used in industries such as automotive, construction, and aerospace. Making these materials more expensive risks damaging downstream manufacturers rather than protecting domestic metal producers.

In volume terms, the US imports approximately 35 million tonnes of steel a year, with Canada, the European Union and Mexico among the top suppliers. The US automotive sector alone is worth over $1.5 trillion, so even small cost increases could ripple through supply chains and erode competitiveness.

POSITIVE RESPONSE TO DEREGULATION

Beyond trade, deregulation has been a key theme of the new administration’s economic approach. Markets have responded positively, particularly in financial services and energy where the removal of regulatory constraints has boosted sentiment.

Yet while reduced red tape may provide short-term gains, excessive deregulation can carry risks. The last major wave of financial deregulation led to excesses that caused the 2008 financial crisis. In the energy sector, a more permissive regulatory approach may improve profitability in the near term, but could lead to greater volatility and environmental liabilities in the future.

This presents a classic dilemma for investors: higher near-term earnings must be weighed against the potential for longer-term instability. 

GEOPOLITICAL UNCERTAINTY SHOULDN’T MOVE MARKETS LONG TERM

Trump’s approach to global affairs is adding another layer of unpredictability. Long-standing alliances have been tested and the US appears increasingly willing to act unilaterally on economic matters. This shift has led some to suggest global markets are entering a more volatile phase with greater exposure to geopolitical risks.

But while geopolitical events can trigger short-term market volatility, equity markets generally realign over time, driven more by fundamental factors like corporate earnings, interest rates, and economic growth. Historically, markets have shown resilience, often moving independently of geopolitical tensions in the long run.

For example, despite rising tensions between the US and China over trade policy in recent years, global equity markets have continued to perform well, adjusting to shifting supply chain dynamics rather than experiencing significant downturns.

Notably, China has diversified its market exposure away from the US since Trump’s first term (see chart below). While markets have absorbed these shifts, the longer-term impact of trade wars on earnings growth largely depends on how targeted the measures are and the scale in which they are implemented.

Overall, the S&P 500, FTSE 100, and Euro Stoxx 50 have all shown strong long-term returns despite multiple geopolitical crises over the past two decades.

This doesn’t mean geopolitical developments should be ignored. The potential risk from Trump’s policies lies not in the rhetoric itself, but in the structural changes they may introduce, particularly if they lead to deglobalisation or economic inefficiencies.

Investors must be prepared for sudden shifts in US trade policy, unexpected regulatory changes and a more confrontational approach to international relations.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. You should continue to hold cash for your short-term needs.

Data accurate as of 31/01/2025