Trump’s Tariff Shifts Are a Warning for Corporate America to Expect Whiplash
(Bloomberg) -- Donald Trump opened his second term as US president with a market-jolting recalibration of his tariff policies, in a sign of turbulence ahead for investors and corporate executives.
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Early Monday, it looked like Trump would hold off on his campaign vow to place steep tariffs on imports from China, Mexico and Canada.
Investors had been bracing for an economic show of force by Trump, who had said “tariff” was the most beautiful word in the dictionary. Then, a report that the administration would take a more deliberate approach to tariffs helped calm traders who had been snapping up dollars at a blistering pace, and allowed other currencies to rise.
But by evening, Trump appeared to at least partially reverse course, saying that he would put 25% tariffs on goods from Mexico and Canada by Feb. 1.
For markets, that meant the rush to buy greenbacks was back on.
The apparent changes in Trump’s tariff stance over the course of only about 12 hours underscores the enormity of the challenge now facing business leaders in the US and around the world.
Trump, who was sworn in with a coterie of smiling tech billionaires and CEOs at his side, has positioned himself as the most business-friendly of presidents. Executives flocked to visit him at Mar-a-Lago, his private club in Florida, where there was a celebratory mood after the election.
Yet the fast-paced rollout of policies offered a preview of how Trump is likely to force companies, corporate leaders and investors to adjust in real time to shifting priorities. The opening hours were a reminder to everyone who does business in America: Don’t bank on what Trump promised — watch what he does.
Other policy pledges with the potential to bring significant changes for major US industries were acted on right away. Trump wasted no time in issuing a series of executive orders on immigration that could have a big impact on labor markets. And administration officials outlined steps to boost oil production above its already historic heights.
Promises Made
Business leaders around the world Tuesday were beginning to absorb and analyze the whirlwind first few hours of Trump’s return to power.
“The last 24 hours are just showing that there’s going to be a lot of changes that we all have to digest,” Mary Erdoes, the chief executive officer of JPMorgan Chase & Co.’s wealth management business, said at the World Economic Forum in Davos, Switzerland.
“We have a war room set up to analyze and evaluate each and every” policy, Erdoes said. “So they’ve been up all night and and are working on it.”
Volkswagen AG indicated that it is concerned about the potential economic damage that tariffs could cause. The German automaker said in a statement that it remained “a strong advocate for free and fair trade.”
One of Trump’s motivations in embracing tariffs has been to push more companies to produce goods in the US. VW noted that it had spent more than $5 billion on a Chattanooga, Tennessee facility, and that it directly or indirectly employs tens of thousands in the US.
Automakers are among the companies likely to be most affected by Trump’s planned shifts on trade and other fronts. The administration intends to scrap existing mandates intended to press the auto industry more quickly toward electrification — even though most carmakers see EVs as key to their growth down the road.
Corporate leaders, including those who share Trump’s views on regulation and taxes, have been preparing to respond to other potential policy changes.
A corporate consultant who works with large public companies said this week that one client, a major transportation-related firm, had convened an internal team of executives to map out strategies for different tariff plans that could be coming.
Others have been planning to deemphasize or eliminate programs aimed at improving or bolstering employee diversity, in anticipation of a federal crackdown on so-called DEI policies, the consultant said.
Elsewhere, Vas Narasimhan, the CEO of Swiss drugmaker Novartis AG, said he thought worry about the Trump administration’s stances on vaccines and other health-policy matters was overblown, and he was eager to roll back Biden-era policies that he said stifled innovation.
Market Volatility
After dropping 1.1% on Monday, the dollar bounced back Tuesday, paring that move, as markets reacted to Trump’s decision to press on with levies on Canada and Mexico, sending both currencies tumbling more than 1%. A Bloomberg gauge of the greenback rose as much as 0.7%, with all Group-of-10 peers down on the day.
Treasuries rose in the meantime, as bond investors focused on the fact Trump refrained from imposing China-specific tariffs for now. That eased fears that his policies will fuel inflation and encouraged traders to add to bets on Federal Reserve interest-rate cuts this year.
“Clearly, we are going to eventually have something — but it’s not going to happen on day one,” said Brad Bechtel, head of FX at Jefferies.
In the options market, some leveraged funds were forced to go back to bullish dollar trades they had exited the previous day. Speculative traders had recently boosted their wagers on a stronger greenback to the highest level since 2019, according to Commodity Futures Trading Commission data — underscoring the potential for the consensus to be confounded by an unpredictable president.
Wall Street is facing a difficult task in squaring uncertainty about Trump’s policies with lingering anxiety over inflation and the Fed’s next moves. The potential scope of protectionist trade measures and the timeline for their implementation remains an open question. The White House said on its website Monday that Trump will introduce an America First trade policy.
In the meantime, investors are keeping tabs on corporate earnings and looking for signs that companies can keep up the momentum that drove stocks to multiple records last year. European automakers slid on Tuesday as Trump’s threat of Mexico tariffs added to the group’s woes, while Spanish banks with Mexican operations lagged. Meanwhile, Chinese stocks listed in the US rose.
“The reality is, everyone is a little overwhelmed, and no one on Wall Street has a clear plan as to what exactly they’re going to do,” said Michael Purves, chief executive officer at Tallbacken Capital Advisors.
--With assistance from Carter Johnson and Bre Bradham.
(Updates with executive comments in second section and additional details throughout.)
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