Donald Trump’s presidency marks a series of strategic moves and political manoeuvres that have significantly impacted the US economy and global politics. From winning the populist vote to implementing tariffs, Trump’s actions have been both praised and criticised over his first 25 days in office.
Gary Reynolds, Chief Investment Officer, ruminates on the start of Trump’s presidency, his economic strategies, and the risks businesses take aligning too closely with him (or any political faction).
Trump’s journey to the presidency began with his successful campaign that resonated with a significant portion of the American electorate. Despite his controversial persona, Trump managed to win the popular vote by positioning himself as a champion of the average American. His ability to connect with the electorate and his reputation as a successful businessman played crucial roles in his victory, securing him not only every swing state, but also the populist vote.
Economic strategy and tariffs
Trump is an expert politician who uses distractions, like tariffs, to keep the public and markets guessing. When starting to discuss Trump’s economic strategy, Gary compared Trump to a magician who uses sleight of hand to divert attention while executing his real agenda.
However, America’s significant deficit, currently around 7% of GDP, should be where Trump is looking, as he really needs to reduce it to about 3%. Trump’s tax cuts would require finding new revenue sources, potentially through tariffs.
By imposing tariffs on imports from countries like Canada and Mexico, Trump aimed to generate revenue and reduce the US deficit. Historically, tariffs raise money for wars, but in modern economies, they are less common and often seen as detrimental. Tariffs can increase the price of imports, leading to inflation, which negatively impacts the average voter. Trump knows this, and his actions are carefully calculated to maintain voter support.
“Tariffs are inflationary and that’s not good for the average voter – and Trump cares about the average American voter. So, there is a lot of smoke and mirrors with Trump, and there will continue to be smoke and mirrors.” – Gary Reynolds, Chief Investment Officer
Still, Trump’s approach to tariffs has been characterised by a mix of aggressive moves and strategic retreats. For instance, after imposing massive tariffs on Canada and Mexico, he engaged in negotiations that led to their temporary suspension. This pattern of imposing – and then retracting – tariffs creates uncertainty in the market and can be a tactic to maintain his popularity while avoiding significant economic damage. Still, some tariffs could remain and affect trade dynamics – it’s important to identify which tariffs will have a significant impact on the economy.
Geopolitical manoeuvring
Trump’s presidency has also involved geopolitical manoeuvring, particularly in the realm of defence spending. He has pushed European countries to increase their defence budgets, thereby reducing the financial burden on the US. This shift has been beneficial for businesses involved in defence but has also strained relationships with traditional allies.
Influence of wealthy individuals
Prominent figures like Elon Musk and Jeff Bezos (owner of Amazon) have aligned themselves with Trump, potentially gaining a safety net from any fallout. Their influence in politics could lead to policies that favour their interests. However, this alignment carries risks. Take, for example, Rudy Giuliani. Despite his initial success and support for Trump, Giuliani’s fortunes have declined, and Trump has not come to his aid.
“At Trumps’ inauguration, the great and the good from the tech sector lined up to support him, but then the news about DeepSeek broke and Trump said exactly the right thing, but not what would necessarily uphold his billionaire supporters. DeepSeek shook the tech industry and is forcing investors to re-think, which is a bit of writing on the wall. The NVIDIA share price collapse could be the first warning shot to that sector.” – Gary Reynolds, Chief Investment Officer
While there may be short-term benefits, long-term implications for businesses who align themselves politically can be detrimental, and they may find themselves vulnerable if there are changes in the political landscape. For example, if the Democrats come into power, they may view companies that supported Trump unfavourably, leading to potential regulatory or financial repercussions.
The sum of it all
Trump’s presidency has evolved from winning the populist vote to implementing tariffs and engaging in geopolitical manoeuvring. His actions have had significant implications for the US economy and global politics. While his strategies aim to generate revenue and reduce the deficit, they have also created uncertainty and inflationary pressures. His use of tariffs and influence over defence spending have had mixed results, and the alignment of wealthy individuals with his administration highlights the complex interplay between politics and business. The risks associated with political alliances underscore the importance of maintaining a neutral and stable approach in the ever-changing political environment.
