The new moon in mid-April has pushed Easter back to late in the month and presents me with even more of an issue with timing than usual. Writing this on 14th April means that it will be 2 ½ weeks before it arrives, let alone before anyone actually reads it! That feels like a long time in the current climate. With apologies for being overly verbose, I have given myself more space this time.

The quarter got off to a relatively calm start but, following inauguration of the new President and a welter of ‘Executive Orders’, the tone was set. Orders that included a withdrawal from the World Health Organisation and the Paris Agreement on climate change, establishing the Department of Government Efficiency (DOGE) under Elon Musk and pardoning over 1,500 January 6 rioters. Vice President Vance then poured derision on Europe at the Munich conference, and a low point was reached with the ghastly treatment meted out to President Zelensky in the Oval Office. 

The positive side to this is that Europe has been shaken into action, most notably Germany. Friedrich Merz (Germany’s likely Chancellor-in-Waiting) has moved with exemplary speed and the Bundestag (parliament) has passed a landmark fiscal reform bill. That sounds dry but it was vital to unlock defence spending and remove borrowing restrictions. 

But then came that extraordinary performance in the Rose Garden, the President’s ‘Liberation Day’, outlining massive increases in tariffs. These were significantly worse than feared, many were apparently ‘reciprocal’ but seemingly based on flimsy evidence. Stock markets took their cue and fell sharply, while the President talked blithely of some pain before the benefits would be felt. But then the US Treasury market cracked and many of us began to wonder if this was a ‘Liz Truss’ moment.

The difference, of course, being that the UK’s tribulations in autumn 2022 were effectively limited to the UK (though the scars remain). The US Treasury market is the biggest and most important in the World, where ‘risk free’ rates are set, undermining this is deeply damaging. The ‘great negotiator’ blinked and backed off some of his more extreme measures, but not without lifting the tariff on Chinese goods to 125% as they, unsurprisingly, retaliated with tariffs of their own. Incredibly, the President said that this was: “based on the lack of respect that China has shown to the World’s markets”. 

US Federal employees have been traumatised by the abrupt laying-off of 250,000 workers by the DOGE (the figure is debatable as a number have been rehired). I struggle to see how the Trump ‘base’ can be feeling anything other than betrayal. Federal workers (including many military veterans) being fired in their droves are now seeing their 401Ks (their pensions) being hit, and as for that pledge that he would get rid of inflation… This has broad implications for the US economy too as so many companies supply the Federal Government and are now uncertain.

It has been put to me that this is a grand plan to re-balance the international trade playing field (which, I agree is distorted in some areas) and that tariffs will reduce for all when the conclusion is reached. Well, that is possible and might be desirable but tackled in this manner it is most unlikely to be achieved and certainly not without huge disruption. At one point last week, US stocks were falling at the same time as US Treasuries and the dollar. That is more reminiscent of Japan in the 1990s than the world’s pre-eminent economy and keeper of the principal reserve currency.

The President has raised uncertainty to ludicrous levels and, possibly more importantly, a lot of trust in America has been destroyed. An atmosphere of caveat emptor is settling on American assets. This will take a long time to recover. I do find it deeply depressing that the US administration does not appear to understand what it is doing or have any meaningful grasp of the facts. 

Presumably this is as bad as it gets in terms of tariff announcements, and there will be many ‘deals’ announced to fanfares of Trumpets, but the damage has been done. At least the European Union is responding in a measured way as is our Prime Minister. If there is a silver lining to be found it must be that the European Union is (at last) ‘getting its act together’ and presumably the UK can draw closer again. 
 

The full Quarterly Review is available here.

April 2025

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