Although the USD’s rally mirrored Donald Trump’s first victory in the 2016 US Presidential elections, we doubt the greenback would repeat the sell-off during the first year of his second presidential term in 2025. During Trump 1.0, tariffs were imposed in his second year in 2018 after more than a year of negotiations and investigations.
Following Trump’s decisive victory in the US elections on November 5, several developments demonstrated a significantly more aggressive and assertive tariff strategy during his second term.
First, Trump expedited his cabinet nominations to ensure a swift transition into his second term, which will facilitate a swift implementation of tariffs at the get-go. This week, global financial markets and countries were taken aback by his sudden announcement to impose a 25% tariff on all Mexican goods and Canadian goods entering the US, and an additional 10% on Chinese imports.
Second, Trump will not focus tariffs on selected countries and specific products (like steel and aluminium previously) and target entire goods entering America from most countries, and tying tariffs to multiple objectives (e.g., illegal immigration and drug trafficking), not just trade. Let’s not forget Trump’s threat to slap 100% tariffs on the goods of countries that encourage de-dollarisation.
Third, filling critical cabinet positions with China hawks signalled a return to the confrontational “strategic decoupling” policy. The second term will emphasize reducing US reliance on China with the aim of encouraging businesses to shift supply chains and jobs back to the US.
Although markets viewed Trump’s tariffs as a transactional policy approach to extract leverage in negotiations, not all countries would be willing or able to meet his demand, resulting in retaliatory measures, straining US relations with key allies and trading partners. Apart from undermining business confidence and investments, tit-for-tat trade wars would also hamper or halt the Fed’s ability to lower interest rates. Overall, Trump’s policy agenda is a complex mix of initiatives that sparked much debate seeking coherence. Their impact remains as uncertain as its implementation and global responses.
In light of these considerations, we find it prudent to adjust our currency forecasts to reflect a bias towards a stronger USD at the onset of Trump’s second term.
Quote of the Day
“The time to relax is when you don’t have time for it.”
Sydney J. Harris
November 29 in history
In 1972, Atari created and released Pong, the first commercially successful video game.
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