Winning Concessions
We are pleased to report that another tumultuous week of trade news this time featured positive developments, driving market gains. Investors responded favorably to the United States' limited trade agreement with the United Kingdom and the trade "reset" with the People’s Republic of China—clear signals of market approval for steps toward freer trade.
Since the initial "Liberation Day" of tariffs, President Trump has gradually reversed a substantial portion of his initial tariff announcements. These reversals have thus far included exemptions for certain goods, pauses in tariff application for all nations except China, and, ultimately, a significant reduction in tariffs on Chinese imports.
Many commentators have framed these rollbacks as "concessions" by Trump, suggesting that market volatility forced him to reconsider his protectionist stance. Critics also argue that the agreements lack significant substance, even as the administration maintains that negotiations for lower trade barriers are ongoing. There may be some truth to these criticisms. It is likely that Trump and his team are feeling pressure to get results amidst such market volatility.
However, stepping back from the noise reveals a clearer picture—one that suggests that the United States is on a path toward a more favorable trade environment. Trump made it clear with his tariff announcements that he felt that the current trade structure between the U.S. and the world disadvantaged Americans. He calculated his tariff increases based on tariffs and non-tariff trade barriers, which at first glance seemed haphazard but on further investigation actually appear to be well thought out. After each announcement of a foreign country agreeing to loosen trade restrictions, Trump touts it as a victory and agrees to make “concessions.”
When viewed from this broader perspective, it does appear to be a negotiating tactic that leverages tariffs to secure better terms. Despite the positive news, the work is not yet finished. The rollbacks have not brought the tariff structure back to pre-Trump levels and they are being framed as “pauses,” not permanent abandonment of the tariff strategy. These tactics reflect a carrot and stick effort to encourage negotiations rather than continued escalation. This does not necessarily indicate that Trump believes his tariffs have failed and is conceding to the demands of the market and trading partners. These negotiations will take time, so we have every reason to believe that the administration will continue to put pressure on these countries to make agreements.
Now imagine if there had never been a giant “Liberation Day” tariff salvo. Do you think these countries would have been as motivated as they are now to work so quickly? Trump has four years to accomplish his policy objectives—that is not a lot of time, and he knows it. He is a man on a mission to get his work done and he is using the time he has aggressively.
With all of this context in mind, we can see that Trump is using tariffs as a tool to negotiate a better trade system. He knows it can’t be all bluff. Trump cannot afford to project a lack of resolve. If he had signaled to the American public and the world that he had no intention of enforcing tariffs, his negotiating position would have been weak. Ultimately, Trump has chosen to expose the economy to some short-term pain in pursuit of what he views as a fairer trade system. Paired with other efforts toward deregulation and tax reduction, we believe this strategy could yield positive outcomes for the economy.
The events of the past week make us more convicted in our position that policy is actually going to lead to some meaningful change. There is still a long way to go, and there is of course a chance that it may not turn out as we hope it will. However, we are confident that our portfolio is well-positioned to weather any result of the Great Tariff War.