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Something for Your Espresso – It’s 2017 All Over Again

Trump is throwing tariffs left, right, and center—only to delay them and call it a deal. Where are markets going in all this madness? Ultimately, this is bad news for the USD and US equities, but it could be very decent for China!
2025-02-04

Morning from Copenhagen.

Trump’s current policy approach rhymes an awful lot with what we saw back in 2017, and we’re getting the sense that he’s once again just here to make deals—without any meaningful content. We saw it yesterday with Mexican and Canadian tariffs rolled back after a couple of phone calls between Trump and Trudeau/Sheinbaum, but the tariffs on China were put into effect after the deadline passed this morning, and China immediately responded with tariffs on the US.

There are good reasons why Trump will allow Mexican/Canadian tariffs to slip while letting Chinese—and soon-to-come European—tariffs roll through:

  1. Canada and Mexico have something to offer Trump in return for dropping tariffs—i.e., border control and other non-trade-related policy matters—whereas Europe and China don’t.
  2. The trade deficit with China and the EU is much bigger than with Canada and somewhat bigger than with Mexico. Since they don’t have anything to offer in return, the best move is to let the tariffs roll through and claim a victory. This is the exact same logic he had back in 2017—it’s just more broad-based now.

In all of this, countries like Japan, the UK, Australia, and India are flying completely under the radar, as there’s no political victory for Trump in imposing tariffs here (since their trade deficits with the US are small). These are probably decent bets in the equity space to avoid the headline noise.

Chart 1: US Trade Balances Across Countries

Trump is throwing tariffs left, right, and center—only to delay them and call it a deal. Where are markets going in all this madness? Ultimately, this is bad news for the USD and US equities, but it could be very decent for China!

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