\nApril 2nd may come to be remembered as a watershed moment in economic history. While media coverage has been swift and overwhelmingly critical\u2014understandably, as no country stands to benefit immediately from the policy shift except, perhaps, the U.S.\u2014investors should be cautious not to fall into groupthink.
\nThis piece offers an alternative, non-partisan perspective on what is happening, focusing on the why, the how, and what might come next. It does not seek to pass moral judgment, but rather to help navigate the unfolding landscape. Supporting economic freedom does not mean trade without barriers\u2014it means each party retains the sovereign right to set the terms under which it trades.
\nHow We Got Here: The Unraveling of Globalization
\nThe second half of the 20th century was marked by the liberalization of trade and capital, driving global integration and economic growth. But the benefits were unevenly distributed\u2014between nations and within them.
\nTrade frictions are not new. In the era of fixed exchange rates, imbalances were addressed through major currency adjustments\u2014think of the Plaza and Louvre Accords, when the United States devalued the dollar to regain competitiveness and reduce trade deficits. Today, with free-floating currencies, the United States is instead choosing to rewrite the terms of trade directly.
\nThe failed Doha Round in 2001 marked the last major attempt to reform global trade\u2014coincidentally, the same year China joined the WTO. Since then, China has absorbed vast manufacturing capacity, strengthening both its economy and military at the expense of industrial jobs in the West. Importantly, China has become the United States‘ primary geopolitical rival. Offshoring benefited global consumers but hollowed out domestic production. In President Trump\u2019s view, the United States no longer benefits from the existing trade terms\u2014and is now uniquely positioned to reset them.
\nA Country Club Model of International Trade
\nThe United States remains the most attractive internal market globally and runs persistent current account deficits with many trading partners. This makes it the only country with enough leverage to unilaterally demand new terms.
\nPresident Trump, who owns and resides in private clubs, appears to apply the same logic to trade: access comes at a price. In clubs, one pays an initiation fee. In trade, one pays a tariff. Clubs also form reciprocal agreements\u2014mirrored in bilateral trade deals.
\nThe administration is leveraging America\u2019s economic might, much like it has wielded the dollar as a geopolitical tool. In global markets, this is not about \u201cfair\u201d competition\u2014it is about power. And power is not evenly distributed.
\nDebunking Simplistic Economics: A Tariff is Not a Tax
\nThe argument that tariffs are simply \u201ctaxes on consumers\u201d misses the nuance. Tariffs are levied on imports, not directly on households. The degree to which prices rise depends on many factors: availability of substitutes, the capacity to reshore production, and the elasticity of demand.
\nIf tariffs stabilize around 10 percent baseline, importers may absorb the cost to protect market share. If they rise significantly higher, some inflation is likely\u2014but even then, it is not an automatic pass-through. Services\u2014which comprise 70 percent of United States GDP\u2014are unaffected, and total trade accounts for just 18 percent of the economy.
\n
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<\/a>\nGrowth may slow, but a recession is not a foregone conclusion. Less importing implies more local production. Meanwhile, tariff revenues could fund tax cuts or help reduce debt servicing costs, softening the macroeconomic impact.
\nFor U.S. trading partners, the impact is more direct: fewer exports, slower growth, and downward pressure on prices. This asymmetry explains both the urgency to negotiate and the risks of retaliating from a weaker position\u2014no surprise, then, that only China, with its state-directed economy, has dared to push back.
\nMarkets and Central Banks Don\u00b4t Like Uncertainty
\nThe rollout of the tariffs was rapid and blunt, lacking differentiation between inputs and finished goods. This top-down, \u201cback-of-the-envelope\u201d approach introduces chaos\u2014and invites intense lobbying. Industries will scramble, business models will be tested, and real-time impact data will soon flood into the White House.
\nBecause reciprocal tariffs were also calculated arbitrarily, the administration retains wide discretion to reduce them in exchange for political wins. Markets dislike this level of uncertainty, and valuations will likely remain under pressure until greater clarity emerges.
\nEven if the shock is not existential for the United States economy, the short- and medium-term effects could be painful. If negotiations stall and supply chains start adapting to the maximalist tariff levels, the long-term costs will rise\u2014and become harder to reverse.
\nCentral banks will remain vigilant, monitoring both inflation and signs of economic weakness. Having misjudged \u201ctransitory\u201d inflation in 2022, they will require more evidence before taking decisive action. The so-called \u201cFed Put\u201d still exists\u2014but it is priced further out of the money.
\nCurrencies: A New Front in Trade Wars?
\nCurrency dynamics may soon shift. Classic economic theory links exchange rates to trade balances, interest rates, and growth differentials. If the new tariffs lead to smaller U.S. trade deficits while growth holds up, there will be little reason to expect meaningful long-term depreciation of the dollar. Tariffs may push U.S. inflation higher while exerting disinflationary pressure abroad, helping to maintain a positive interest rate differential in favor of the U.S.
\nIronically, the new trade regime could be partially offset by a realignment in currencies. Expect increasing pressure from the White House on the Fed to lower interest rates\u2014and talk of \u201ccurrency manipulation\u201d to reemerge.
\nDon\u00b4t Panic\u2014Position Strategically and Diversify Well
\nThe scale of the tariff announcement caught many off guard. It originated from the administration\u2019s most hardline advisers\u2014Trade Advisor Peter Navarro and Commerce Secretary Howard Lutnick\u2014sidestepping more moderate voices like Treasury Secretary Scott Bessent. But if the pain spreads from markets to the real economy, the pendulum is likely to swing back toward pragmatism. The administration is unlikely to continue administering a cure that risks killing the patient.
\nTrade may be in retreat, but capital flows are more globalized than ever. As individuals, we may feel the economic pinch of tariffs. But as investors, compounding that impact by fleeing risk assets and realizing losses is inadvisable. Regardless of how investors outside the United States feel about President Trump, U.S. equities remain an indispensable part of any global portfolio.
\nThe recent correction has meaningfully reset valuations\u2014especially when considering earnings trends leading into the selloff and the concurrent drop in interest rates. (The equity risk premium has risen by almost 2 percent.) When global earnings resume their upward trajectory\u2014whether soon or further down the line\u2014markets will eventually follow.
\nIn the meantime, there will be casualties. Some business models face existential threats. This is why maintaining strong diversification is critical. This is a time for index investing, not stock picking\u2014tempting as the latter may be.
\nThis is also a moment for clarity, not panic. Avoid herd behavior. Maintain a long-term view\u2014and if you have cash on the sidelines, consider deploying it selectively in this dislocation.<\/p>\n","protected":false},"excerpt":{"rendered":"
Tariffs, power, and membership: navigating the new trade doctrine BY FERNANDO DE FRUTOS, CFA, PhD | 7 APRIL 2025 \u2022 The Global Trade Backdrop: For decades, globalization boosted growth but created deep imbalances\u2014both between countries and within them. With China rising as a strategic rival and trade liberalization stalled since the early 2000s, the United … Continued<\/a><\/p>\n","protected":false},"author":2,"featured_media":6306,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[126],"tags":[],"class_list":["post-6318","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-unkategorisiert"],"acf":[],"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts\/6318","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/comments?post=6318"}],"version-history":[{"count":0,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/posts\/6318\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/media\/6306"}],"wp:attachment":[{"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/media?parent=6318"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/categories?post=6318"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.borealcm.com\/de\/wp-json\/wp\/v2\/tags?post=6318"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}