Anthony Willis, Senior Economist at Columbia Threadneedle Investments, has provided this week’s macroeconomic review, a week on from Trump reaching 100 days in office during his second tenure as President.
The 30th April marked 100 days since President Trump took office, which is often a time to reflect on the achievements or otherwise of an incoming president.
At his inauguration, Trump launched his Presidency with the promise of a new ‘golden age’ for Americans. He inherited an economy in robust health, but in the space of three months we have shifted to an environment of policy uncertainty at levels only seen during the Global Financial Crisis (GFC) and pandemic, and recession odds somewhere between 40% and 90% depending who you ask.
A huge amount has taken place in the past 100 days. Events have brought into question the narrative of US exceptionalism that has powered US equities to significant outperformance over recent years, led by the mega cap tech companies.
At times it has felt like ’everything, everywhere, all at once’. The policy of ‘flooding the zone’ with newsflow and policy announcements makes it hard to keep up. The challenge of analysing a constantly evolving backdrop makes it hard to make investment decisions with a high degree of conviction. For financial markets, the defining theme has been the move to the highest tariff regime since the 1930s.
What’s done well given such uncertainty? Gold is up almost 19%, plenty of assets when measured in US dollars given the currency has weakened considerably. Former safe havens such as the Dollar – the US dollar index has fallen -9.08% from 20 January to 30 April. In contrast, it was up 11.85% in the five years to 20 January 2025.
US equities welcomed the arrival of the President, expecting a repeat of Trump 1.0 – the S&P500 saw its best post-election gain on expectations of looser regulations and lower taxes that should boost growth. However, the Administration has focussed on the trade deficit, with a wave of tariff announcements leaving markets unsettled and the outlook uncertain.
We have seen huge volatility in the aftermath of the tariff announcements and even with the recovery over the second half of April which has erased the post ‘liberation day’ sell off they are still 8% below the all-time highs of 19th February. The Administration appeared unconcerned over the stock market moves, with Scott Bessent, the treasury secretary calling the corrections ‘healthy’ and ‘normal’. The cracks that emerged in US Treasury markets during the most turbulent of weeks in early April have been the biggest restraint on the Administration, with the violent moves forcing a pause in the implementation of reciprocal tariffs. In the end, they were in effect for just 13 hours.
President Trump will want to move on from tariffs onto the more politically positive aspects of his agenda – primarily tax cuts. These will extend the cuts that began during his first administration. However, by the time the agenda turns to the tax cuts, the US economy may be showing signs of slowing, and it remains to be seen how forgiving the bond market will be to policies that increase the budget deficit further.
With his approval ratings on the slide, President Trump will want some voter friendly policies to be front of mind ahead of the mid-term elections, where the party controlling the White House traditionally loses seats. Defeat in the mid-terms, i.e. losing control of Congress to the Democrats, would likely see far higher levels of policy intervention and pushback than we are seeing at the moment.
The next few months should reveal how deep Trump’s ideology around tariffs will run. Supply chain issues, and empty shelves where goods from overseas once sat, or products suddenly on sale at significantly higher prices will further darken the mood.
The current 90-day tariff extension runs to 9 July, with markets expecting the current reprieve to be extended, or negotiated away for many countries. All the same, we will still be left with the highest rate of tariffs for 90 years. Smaller headline grabbing deals that are light on detail seem more likely. These will likely cover the likes of South Korea and Japan, as well as potentially India. Deals with the European Union and China look far more complex.
We are a long way from the ‘free trade’ era that ended when Trump 2.0 began, and a return to an effective tariff rate below 3%, as the US and its trading partners over recent years have enjoyed, appears a long way off.
Any boost to the domestic economy from manufacturing being brought home will not be felt for several years. It will likely take many years to replace goods made overseas and elevated input costs from higher wages implies price hikes. Businesses will not yet embark on shifting all their manufacturing to the US until they see stability and predictability.
It has been foolish to bet against the US over recent years, and only time will tell if the Trump era is a definitive shift to a much more isolationist America and a new world order. Despite all the noise, the US is still expected to see stronger economic growth than any other G7 country, this year and next. If the next 1,361 days are just a blip, then we expect the dynamism and entrepreneurial spirit of the US to prevail over the long term. Those positives will still be there even under an isolationist President, but an inward-looking US will be economically poorer, as will the rest of the world.
