🇺🇸 America's tariff future

What’s going on here?

The incoming US administration is reportedly considering a softer approach to its planned tariff hikes.

What does this mean?

Donald Trump is set to return to the White House on Monday, and he’s got major plans to shake up global trade. The biggest proposal? A 10% to 20% tariff on all imports, and a hefty 60% tax on goods from China. The move would send consumer prices soaring – and that’s already rattling markets, with stocks and bonds sliding together in recent weeks. But word has it that members of the new administration are discussing a different tack: slowly ramping up tariffs month by month. The hope is that a more gentle introduction would boost the US’s negotiating leverage while avoiding a sudden spike in inflation.

Why should I care?

The bigger picture: Trade war footing.

Regardless of whether those tariffs are rolled out gradually or in one fell swoop, America’s trading partners don’t plan to sit idly by. Canada has vowed to retaliate “tit for tat” if the US follows through on its 25% tariff threat, while Mexico, China, and other major partners have hinted at similar countermeasures. And if everyone starts firing back with tariffs of their own, that’s likely to ignite an all-out trade conflict – not exactly good news for the global economy.

For markets: Good hedges make good neighbors.

This is a good time to look at protecting your portfolio from the prospect of a full-blown trade war, and the US dollar could make for a savvy hedge. That’s because the new levies would curb American imports, resulting in fewer dollars “sold” to purchase foreign goods and bolstering the greenback over time. Plus, tariffs would increase US inflation, keeping interest rates higher and making the dollar more attractive to international savers and investors. And if those tariffs do spark a globally damaging trade war, that’d juice demand for safe-haven assets like – you guessed it – the dollar.

What’s going on here?

Chinese banks doled out fewer new loans in 2024 than they have in 13 years.

What does this mean?

Loans are like fuel for economic growth: when people and businesses borrow, they spend more than they earn, creating a ripple effect that boosts everyone’s income. But the reverse is also true. When fewer loans are issued, spending takes a hit – slowing the economy and shrinking demand for loans even more. So a drop in lending is always a bit concerning, even in the best of times. But in China, where the economy has been battling with a recent run of consumer price deflation, it’s a downright distressing sign. See, deflation in the country is discouraging spending (because people expect prices to fall in the future) and making loans more expensive to repay in real terms (because incomes dwindle while debt stays the same). It’s a vicious cycle that’s going to be hard for China to break.

Why should I care?

For markets: The glass-half-empty crowd.

Stock investors are primed to focus on what’s coming next, not what’s happening now. And with Chinese stocks entering a bear market, it’s clear they aren’t betting on a quick economic turnaround. But traders often assume the future will mirror the past – and they’re frequently wrong. That leaves room for upside surprises, where even a small dose of better-than-expected news could spark a rally.

The bigger picture: Global debt worries.

Overwhelming debt levels are always a worry. But consumers are in good shape across much of the world, with loans largely proportionate to income and assets. These days, it’s government debt loads that are the bigger issue. Too much borrowing can make it harder for policymakers to respond to crises, push up borrowing costs for everyone, and lead to inflation and economic stress. So it’s no surprise that investors have been shunning government bond markets in favor of other assets.