Oh, man. Where do I even start with April 2025?
I guess I better get the two ‘t’ words out of
the way first……Trump……tariffs. There was a third ‘t’ word but my daughter reads
this. You get my drift though.
If you are a little t-worded out, now would be
a logical place to hop off. No offence taken……I get it.
To understand the whole tariff mess, there is a
need to understand why The Trump is doing it firstly. In essence, The Trump
doesn’t like the global trading system. For more than a generation, the US
economy has been dragged hideously out of shape by a massive financial
distortion caused by the way investors use the dollar.
The dollar solves a dilemma. When a country
accrues lots of savings, perhaps because it sells huge amounts of oil or has
built a whole economy around battery or semiconductor exports, it needs to
store the cash. Storing it in the country’s own currency presents two problems.
The first is that a lot of these countries have
volatile exchange rates because they are ruled by thieving dictators or because
their financial markets are very small so it’s risky to have all the money in
local unstable currency. The second is that if they convert their savings into
local cash, they’ll push their exchange rate up and that will make their
exports more expensive until they become uncompetitive (killing the golden
goose).
So, they don’t let that happen. Instead, what
all these Governments and Sovereign Wealth Funds (plus a few rich families and
pensions) do is buy US Treasury Bonds. The US Treasury Bond market is seen as big
and stable, open to anyone and underpinned by the rule of law.
And when I say big……$27 trillion……or for
theatrical drama…… $27,000,000,000,000.
The outcome is that dollars, in the form of US
Treasury Bonds, have become the backbone of the world’s piggy bank. And The
Trump doesn’t like that. He sees the money being made by Governments around the
world through the charging of tariffs that the US must pay for their imports. These
profits are being converted to dollars and keeps the dollar exchange rate
artificially high, which impacts US ability to sell their more expensive goods.
So, in The Trumps eyes there is only one thing
for it……reciprocal tariffs. If you want to sell your product / service to the
US and you are not a US company making the product / service in the US, then
you will pay a tariff to do so.
The Trump announced the tariffs in a speech like
a game show. What did your country win (or get away with)? He named it “Liberation
Day” and 2 April 2025 will be studied by many generations to come. The UK got
off lightly at 10%......China took a hit at 145%.
And what a mess. Classic Trump.
The Numbers
In response to Liberation Day, the US
stockmarket fell 10.5% over a 2 day period……the biggest fall for 5
years. Then when he reversed out of the tariffs with a 90 day delay, the index
gained 9.5%......the third-largest one-day return since 1987.
Volatility that only The Trump can create. He
really will test Americans threshold for pain this year.
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More than £60 billion worth of British
goods are exported to the US each year. The Trump’s tariffs threaten sectors
from pharmaceuticals to whisky. Most of those exports are now going to be
subject to a 10% tariff, although there will be some exemptions and some
higher rates. The Trump published a list of more than 8,000 products
that could be subject to retaliatory tariffs.
Predictions on the exact financial impact to
the UK economy is not an exact science, given that The Trump is full of
contradictions and throwing exemptions about for fun.
However, as little as a 0.6% reduction
in GDP would wipe out Rachel Jane Reeves’s budget headroom and force her to
find almost £18 billion worth of further savings or tax rises. Even a slender
0.2% reduction would result in a £6.2 billion hit to the economy,
The key sectors that will take the biggest hit
are likely to be cars, pharmaceuticals, food and drink.
As a whole, US imports of vehicles amounted to $217
billion last year, 6.6% of all goods imported. The US is the UK’s
second largest car export market (after the EU), with exports of more than 101,000
units in 2024, equating to £9 billion of cars. There is now a 25%
tariff on UK car imports to the US, with up to 25,000 jobs at stake.
Pharmaceutical goods are one of Britain’s top
exports to the US, with exports to the country worth £6.5 billion last
year. GSK makes more than 50% of its sales in the US and AstraZeneca 40%.
Big figures and a likely big impact……unless we
see further reversals from The Trump.
Talking of reversals……Elon Musk performed an
amazing U-turn. Having literally been The Trumps ‘go to man’, he announced that
he was standing down from Government responsibilities. Perhaps it had something
to do with Tesla’s income falling by 39%......or Tesla shares falling by
37% this year. It appears to be expensive to be a friend of The Trump.
Another key measure of confidence in The
Trump’s tariffs is the price of oil……with the price falling below $60
for the first time in more than 4 years during April.
As a little light relief, my favourite number this month was……11……the (not so) little lady turning 11 on her birthday!
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There could only by one winner of the Trump of
the Month award for April 2025……Donald John Trump.
To make a microchip, white lumps of quartz are
mined in Galicia, Spain, before being smelted in Berghausen, Germany. This
“polysilicon” is then flown to Oregon, United States, where a Japanese company
turns them into silicon wafers, before being shipped halfway round the world
again to Taiwan.
There, arguably the most important company in
the world (the Taiwan Semiconductor Manufacturing Company – TSMC) takes these
wafers and, following designs from British-based, Japanese-owned Arm, etches
semiconductors into them using a machine made exclusively in the Netherlands.
The chip then zips up to Malaysia for
inspection and wiring. It then lands in Zhengzhou, China where workers for
Taiwanese-owned Foxconn attach it to the rest of the phone. From mine to
motherboard for just £35 a chip.
If the iPhone were swept up in the tariff war,
the cost of the end product would double. There are about 150 million iPhone
users in America, comprising almost 60% of the market (the UK is 45%). It is
the indispensable consumer product (even The Trump uses one) that any President
would do well to avoid doubling in price.
So there was only one action available to The Trump……to
perform one of his customary U-turns……and exempted smartphones and
semiconductor chips from the new tariffs.
It was a victory for Silicon Valley, proving
the power it can exert on The Trump. It also demonstrated the limits of The Trump’s
understanding, rhetoric and freedom to operate.
Two things can be true at the same time……US companies
are still the best and most innovative in the world and there is no current
alternative to Chinese manufacturing. Capitalism at the end of the day will
prevail.
The Trump’s craziness has been taken to a whole
new level……it’s almost admirable. Almost.
Trump Lunacy Rating: 10 / 10
And Finally……
“History never repeats itself; man
always does."
Voltaire
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