The end of US exceptionalism. The folly of Trump’s tariffs. Market troubles will endure. Extreme scenarios on the cards. Europe’s awakening. A ceasefire – but then what? What does the MAGA crowd think?

  • THE END OF US EXCEPTIONALISM. Since last month, US consumer and business sentiments have plummeted. The new administration’s extreme policy uncertainty has caused (1) a fall in consumer confidence accompanied by a rise in inflation expectations and (2) a suspension of firms’ investment decisions. This combination raises the risk of a US recession that could lead to stagflation. The belief within the Trump team that it is “building a strong economy with staying power” (in the words of a White House official) is a mirage: contrary to Trump’s assertion that “there would be no gain before there was gain”, there’ll be pain but no gain.
  • THE FOLLY OF TRUMP TARIFFS. Tariff ‘policies’ are generating utter chaos: on and off and applied indiscriminately. In fact, they are just being used as a bargaining chip for solving problems they cannot address (like resurrecting the US industrial base, improving the trade balance, sorting the US fiscal deficit, or reducing fentanyl consumption). Barring an unlikely permanent reversal, they’ll be bad for the US and worse for most of its trading ‘partners’ (since the US runs a large trade deficit, it has more imports to tax and therefore has the upper hand in its conflict with surplus countries). Globally, tariffs will end up (1) raising inflation, (2) slowing economic growth, (3) cutting corporate profits and (4) increasing geopolitical tensions. For a preview of the damage they create, look no further than the current trade war with Canada.
  • MARKET TROUBLES WILL ENDURE. The US market is on the verge of a 10% drop, having moved in just a few weeks from exuberance to despair. The core reason: Trump is a modern mercantilist on a mission to rebuild his country, by “restoring American manufacturing and global dominance” (his words). As he earnestly believes that trade deficits represent a threat to US strength and wealth, the validity of the “Trump put” hypothesis (a market selloff would prompt the US president to reverse his policies) becomes questionable. How much of a US market fall would it take for Trump to reverse course? Probably a lot. And because the US is intent on refusing to run big trade deficits (which means that the “pie” available to other countries to produce more than they consume will shrink), other markets will fall too.
  • EXTREME SCENARIOS ON THE CARDS.The wave of anti-Americanism unleashed by Trump’s policies among its closest allies is so potent that, suddenly, the US is regarded as an unreliable, untrustworthy long-term partner. Argentina aside (the only friend left), much of the world now views Trump’s America as “a rogue superpower, a mercantilist behemoth determined to squeeze every ounce of wealth and power from the rest of the world” (Buckley, a US political scientist). Hence, scenarios that seemed ‘inconceivable’ just a few weeks ago could become plausible. Two to consider. (1) The impregnable nature of the $ dominance is taken as a given, but major US policy missteps might break this assumption. The dollar’s status as the central currency in the world economy (its “exorbitant privilege”) might indeed be questioned. Considering the US federal government’s borrowing needs, countries rushing out of $ assets would amount to a catastrophe. (2) Trump’s weaponization of uncertainty might work in diplomacy but never will in economics (where decision-making is much too diffuse). His policies will backfire and make everyone worse off. In a world that makes forecasting impossible, only scenario analysis can help make sense of inter-systemic risk and its unintended consequences. Check out The Oracle Partnership .
  • EUROPE’S AWAKENING? Trump’s ‘shock and awe’ policies are galvanising action in Europe and might even make it great again! How? (1) By tilting the political landscape – helping centrists to the detriment of the far-right. (the “rally round the flag” effect). Could Europe soon pass “peak populism”? (2) By prompting the German chancellor-in-waiting to declare that Germany would amend the constitution to exempt defence and infrastructure from limits on spending – a ‘fiscal bazooka’ amounting to €1.9tr. (3) By prompting the European Commission to raise €150bn for the EU defence industry and to start discussing a new European defence fund in which the UK could participate. Progress on Draghi’s plan for a new EU industrial strategy is now in sight. The bottom line: Europe has the economic resources to step up to the plate. (1) The EU ratios of debt to GDP and fiscal deficits are much lower than those of the US, while (2) the purchasing power of its GDP (+ the UK) is higher than that of the US. The roads towards greater unity and economic progress will be paved with difficulties and painful trade-offs. It’s not a done deal, but Trump’s ambush feels like a 1918, 1945 and 1989 historic moment around which European leaders could coalesce. As Jean Monnet (one of Europe’s founding fathers) famously said: “People only accept change when they are faced with necessity and only recognize necessity when a crisis is upon them.”
  • A CEASEFIRE – THEN WHAT? Ukraine has just accepted the US proposal of a 30-day ceasefire, buckling to Trump’s demands. 2 questions remain. (1) Will Putin accept it? Maybe. (2) Would it provide lasting and stable peace? No. Long-term, Putin is betting on Trump tearing his country and the West apart.
  • WHAT DOES THE MAGA ‘CROWD’ THINK? This month, we redoubled our efforts to talk to American friends who support President Trump – a tiny sample, but one that gives interesting insights. Most arguments favour issues like immigration and ‘freedom of speech’ with Trump credited for already having done a “great job” in these areas. Nobody yet seems concerned about trade policies and the fact that, contrary to the first Trump administration in which some officials like Gary Cohn and Steven Mnuchin opposed extreme forms of tariffs, this time nobody does. The whole economic team is composed of loyalists who toe the party line, even when having to deal with value-destroying policies. Therefore, our conviction that the Trump experiment will end badly for the US – and consequently for much of the world, remains intact. Tomorrow’s world will be nationalistic, protectionist, and militaristic – volatile and chaotic.
  • For an in-depth proprietary analysis of any of the bullet points – please contact us. We provide tailor-made, independent research. Details HERE.