A rollercoaster week for appointments and tariffs
Developments over the past week around appointments and tariffs have been nothing short of a rollercoaster.
Over the last few weeks, Trump has unveiled several key cabinet appointments ahead of his return to the presidency in January. The most significant was the nomination of Scott Bessent to lead the U.S. Treasury Department (a critical role with sweeping influence over tax policy, public debt, international finance, and sanctions). Bessent, a highly regarded Wall Street professional, is widely seen as a steady and pragmatic figure, promising a more measured approach to trade.
Markets initially welcomed Bessent's nomination, reflecting optimism that his leadership might bring stability. His active participation in economic forums over recent months, where he provided detailed insights into the Trump administration's potential economic strategies, was another positive. Unlike other Treasury candidates, who remained vague on policy specifics, Bessent established himself as a thoughtful and pragmatic voice. While his views were occasionally polarising, his reputation for self-awareness and constructive dialogue bolstered confidence in his ability to guide trade policy effectively.
However, this sense of relief was short-lived. Almost immediately, Trump reignited uncertainty by threatening to impose new tariffs of 25% on Mexico and Canada, and a 10% hike on China, contradicting Bessent’s prior assurances of gradual, purpose-driven tariff adjustments. These conflicting signals served as a reminder of the unpredictable nature of Trump’s policymaking.
A further damper was when Trump unexpectedly announced that Howard Lutnick, a rival of Bessent, would serve as Secretary of Commerce. In a surprising twist, Trump stated that Lutnick would oversee trade policy, with U.S. trade representatives reporting directly to him. This unexpected power dynamic introduced fresh uncertainty for markets already grappling with the administration’s unpredictability.
The challenges of a second Trump term and potential for a deal with China?
If Trump’s second term mirrors the volatility of his first, trade policy is unlikely to find solid footing anytime soon, as Kevin Boscher, our chief investment officer, discussed in greater detail in his recent Boscher’s Big Picture. However, history suggests the potential for surprises. When Trump won the presidency in 2016, he promised to build a border wall with Mexico and “rip up” the North American Free Trade Agreement (NAFTA) with Canada and Mexico. A year later, the agreement had been renegotiated and rebranded and Mexican bonds and equities recovered strongly. As such, we must take what Trump says with a pinch of salt.
Despite his tough stance, there are compelling reasons why Trump might seek a negotiated agreement with China. Such a deal could secure China’s cooperation in pressing global issues, such as encouraging Russia to negotiate on Ukraine, curbing North Korea’s ambitions, or managing tensions with Iran. From an economic perspective, China adopting policies to revalue the yuan, increase purchases of US-produced goods, and reduce geopolitical tensions could benefit both nations. In return, reduced tariffs, eased semiconductor restrictions, and lower energy costs would offer incentives for China.
This dynamic underscores the complexities of Trump’s approach: while unpredictability is a hallmark, his willingness to pivot, often driven by strategic considerations, means markets must stay braced for the unexpected.
