Trade: “A distinction without a difference"

The combination of US President Donald Trump's war of words with the Federal Reserve and apparent de-escalation of his trade war with China lifted US stocks 6% from early-week lows and lopped 10 basis points off 10-year rates.But, as became clear during Medley Advisors' weekly analysts' meeting, these reassurances from Trump and his Treasury Secretary Scott Bessent provided less than met the eye.Even if the US halved its tariffs on imports from China, "you still would be at tariff rates, let's say well above 60%, and maybe even close to 100% on many Chinese goods and the problem there is that it's a distinction without a difference," said Brian Jackson, Medley's China and trade specialist. "So, it might look nice. It might feel good for markets because, directionally, it is positive. But, in terms of actual activity, it might still be a blocking level of tariffs you're left with".In this edited and abridged podcast from the weekly meeting, the speakers - in order - are Tim Jones (Europe), Jackson, Michael Redmond (US), Dan Schwartz (markets/data), Kenichi Nagura (Japan), Fernando Posadas (Latin America), and Andrew Besuyen (Australia and New Zealand, and markets).

The morning after the Trump administration published its “Liberation Day” tariff list, Medley Advisors analysts met to consider the next steps. They discussed how much of the package was accident or design, US negotiating tactics and capacity, retaliation and conciliation.   “The one thing that's really notable,” said Brian Jackson, Medley’s China and trade specialist, “is that Mexico and Canada are at a huge advantage now compared to the rest of the world because they have a 20-percentage-point advantage in tariffs against everyone else … So, as much as (Prime Minister Mark) Carney was on TV last night criticizing Trump, we'll see – a year from now – how Canada feels about it because they're possibly going to enjoy a huge amount of diverted demand from Europe and from China into their market. And probably more so Mexico because Mexico has much more manufacturing than Canada”. In this edited recording of the meeting, the speakers - in order - are Jackson, Michael Redmond (US macro analyst), Pepijn Bergsen (European policy analyst), Fernando Posadas (Mexico specialist), and Kenichi Nagura (Japan analyst).

Over the past three weeks, the US withdrawal from European security and a consequent arms-and-infrastructure fiscal boost for Germany have driven up the euro, along with European equities and interest rates.Medley Advisors' European analysts, Tim Jones and Pepijn Bergsen, got together to discuss whether this political upheaval justifies the scale of repricing."At the end of the day," says Bergsen, "there's a very easy rule of thumb here, which is that those countries closest to Moscow are increasing defence spending while those far away who don't feel threatened politically are in a position that they don't really want to and probably also don't quite have the fiscal space".Germany will take time to ramp up its spending but it has the space and the urgent need to do so. The eurozone's other big three have their budgetary hands tied, so it will be Poland, the Baltics, and the Nordics rearming in response to US withdrawal.

Eighteen months after Australia’s central bank chief was removed, New Zealand’s governor Adrian Orr quit with three years left of his term. Both had faced withering political criticism, but Orr’s departure was so abrupt and inexplicable that it shook the market just as the Reserve Bank of New Zealand was carefully reversing its pandemic-era tightening cycle. To explain what Orr’s departure may mean for policy and to contrast the easing cycles in Australia and New Zealand, Pepijn Bergsen talked to Andrew Besuyen, Medley Advisors’ analyst for the region. Before joining Medley in 2023, Andrew was an RBNZ economist who worked on the analysis team for Orr and the monetary policy committee.  “Adrian has a tendency to take a lot of the criticisms to heart, and so maybe it's just come at a time where he's had enough". "Once he knew where he wanted to get, he wanted to get there quite quickly, and, in this case, he wanted to get the OCR to 3% or at least have a three handle. I think the committee bought into that in general. So even without him there, there'll be a little bit of that mentality remaining”. 

The impact of the US government's about-turn on Ukraine and the North Atlantic alliance will be felt most keenly in Europe.In this podcast, Pepijn Bergsen, Medley Advisors' macro policy analyst, and James Waddell, the Head of European Gas and Global LNG at Energy Aspects, discuss what this strategic upheaval will mean for natural gas prices and fiscal spending."Europe remains pretty burned from what happened with the Russian weaponisation in the first place," says James Waddell. "Most member states remain opposed to Russian gas coming back. Certainly, the [European] Commission does, and we're expecting next month the commission to start really giving teeth to its roadmap for exiting Russian hydrocarbon imports by 2027 ... And unless Ukraine has very strong guarantees from the West on its security, we think it will still be reluctant to allow a lot of Russian hydrocarbons to flow through Ukraine, given the fact that this would just be funding a future war chest for aggression against it in the future". 

Radical US Republicans are looking 5,000 miles south for inspiration as they take their own "chainsaw" to government. Sixteen months since taking office as Argentina's president, Javier Milei has met his promises to drive down inflation and generate a primary surplus while sustaining public approval.For an assessment of the exportability and sustainability of the Milei model, Pepijn Bergsen talked to Medley Advisors' Argentina specialist, Ignacio Labaqui."I don't think the public finances of the US and Argentina are comparable even if both countries have run large fiscal deficits for a while," says Labaqui. To meet his goals, Milei froze public spending, including pensions, and bypassed Congress in budget-making. "You could streamline some expenditures in the US, but I don't think the Milei formula is basically replicable".Aside from hubris, Labaqui sees the greatest threat to Milei as "a deterioration of the international environment" due to US President Donald Trump. "Trump is very close to Milei ideologically ... but the systemic consequence of Trump's policy could put Milei's economic approach under stress. If Trump results in higher interest rates and a stronger dollar, that's going to lead to the appreciation of other [emerging market] currencies that will aggravate the strength of the peso".

Markets have been pricing in a second Donald Trump presidency since October but are still unsure over how literally to take his trade and fiscal promises and their spillover into Federal Reserve policymaking. His first days in office have been even noisier than they were in 2017 as he signed more than 100 executive orders and pardoned 1,500 people convicted for crimes related to the occupation of the Capitol Building in January 2021. On top of this, joining Trump in his practice of government by social media is Elon Musk – the poster-in-chief on his own X platform.  In an attempt to find the economic-policy signal in the noise, for this podcast, Medley Advisors brought together Michael Redmond, their US macro analyst and “Fed watcher”, and Brian Jackson, their China analyst. 

Medley Advisors'  policy analysts make their predictions for the year ahead.In order, the speakers and subjects are: Michael Redmond on the US.Brian Jackson on China.Kenichi Nagura on JapanTim Jones on the Eurozone.Pepijn Bergsen on Switzerland.Phil Tyson on the UK.Debalina Hazra on India.Mario Lima on Brazil.Fernando Posadas on Mexico and Colombia.Ignacio Labaqui on Argentina, Ecuador, and Chile.Andrew Besuyen on Australia and New Zealand.Eric Chiang on Southeast Asia. 

Donald Trump's return to the US presidency will accelerate the EU's slow-motion fiscal, security, and competitiveness crises.Trump tariffs and the union's response are “going to hurt Europe either way,” says Pepijn Bergsen, a European policy analyst at Medley Advisors. Not only will there be a hit to demand for European (especially German) exports to the US, he says, but the “Chinese exports that are likely to be diverted to Europe … will weigh on price pressures in Europe as well”.In this podcast, Bergsen and colleague Tim Jones discuss the immediate stress test posed by a second Trump term but explore his catalysing effect on national defence spending, military and reconstruction commitments in Ukraine, and EU expansion.  

Since Donald Trump regained the US presidency on 5 November, bond, stock, and currency markets have all repriced yet their direction is unclear. To assess what this repricing says about the revised outlook for global growth, inflation, and fiscal and monetary policy, Medley Advisors brought together three in-house market analysts: Nick Stadtmiller, Dan Schwartz, and Phil Tyson. "The Trump policy mix adds a significant overhang to what was already a pretty fraught situation and one that's likely to be persistent," says Dan Schwartz. "I think that's what we're seeing unfold ... Certainly yields have moved up but rates markets have been choppy and we've seen big rallies ... yet the dollar's barely budging".