The first weeks of Donald Trump’s mandate are unfolding at a staggering pace and in chaotic fashion, leaving observers increasingly stunned. And yet, events are proceeding as planned according to his programme. Donald Trump is doing what he said he would. Is it foolish to be surprised? Cynics may have doubted the implementation of his programme as it stands on account of its many inconsistencies. Why initiate a tariff war when US consumers and constituents are still reeling from a wave of inflation? Is the “drill, baby, drill” plan - aimed at lowering the price of oil (to around $40) to counter a potential resurgence of inflation - credible if most US producers operate at a loss when oil falls below the $50 threshold? Admittedly, the new geopolitical landscape forged by the Trump administration may cause oil prices to drop, and importantly, 8 members of OPEC+ - including Russia - have just agreed to raise production from April. Nevertheless, the price of oil - at $67 - is currently at the lower-end of the price range observed over the past year, without a genuine change of regime so far. In a bid to reshore production back to the United States, is America ready to pay more for its consumer goods? And are there still enough blue-collar workers available after much of the workforce moved to services, especially if the immigration gates are closed? Is America prepared to bear the cost of the retaliatory tariffs that its first trade victims seem intent on applying (Canada, Mexico... or even China)? Accepting that Trump’s programme is to be taken in its entirety implies incorporating these inconsistencies into our investment policy.
Read the full analysis by Benjamin Melman, Global Chief Investment Officer of Edmond de Rothschild Asset Management.