Seeing the comical, yet deadly serious actions of the Trump government unfold is a crash course in history. There were so many things we were taught in high school about the rise of the Nazi Party. I repeated the details dutifully at tests and oral exams. But still, the succession of events remained a mystery to me.
What was always missing was an understanding of what had actually happened to an educated people within a short period of time. Were the politicians and industry leaders blind to the menace? Were the people coming to power taking revenge on the elites for their own mediocrity? And why did the latter play along until they had lost all power to reign in the excesses? Was ideology intoxicating enough to erase all decency?
We have now front row seats observing the destruction of the American republic. All levers of state power have been subdued to the will of Trump: the army, Congress, law enforcement. The MAGA ideology, drafted for him by conservative extremists, has morphed into the unchallengeable adoration of the Leader. They may applaud the demolition of science and learning, or the vilification of foreigners. But even the evil script writers cannot influence events anymore.
Competence, expertise, professional experience is not asked for. All subalterns have to learn their roles from scratch. Sadly, we are not only the audience. We are drawn into this black comedy as extras. Our part is to be made an example of American wantonness.
As an investor I am deeply unhappy about my dollar investments. All of a sudden they feel morally wrong: why would I put my money to work in a country that threatens and insults my continent (Trump: “The EU was formed in order to screw the US”)? But it is not only an ethical question. My investment returns are under serious threat, both financially and legally.
I have long subscribed to US exceptionalism in my investments. US stock valuations were higher than comparable European companies, their profit margins were much higher too. Companies like Apple, Alphabet, Microsoft or Nvidia were money-printing enterprises, not even vaguely threatened by peers or competition authorities.
The US dollar was a currency like no other. An estimated 64% of the world’s debt is denominated in dollars; 59% of all assets, 54% of all invoices are issued in dollars. Foreign exchange is almost 90% a dollar-based business. In times of crisis everyone would flock to the dollar, even when the crisis, like the global financial crisis was triggered by the US itself.
I therefore held half my savings in dollars, and even evaluated the ups and downs of my investment portfolio in dollars, showing paper losses when the euro tanked as it often does. Now I look at the mess and understand I have a problem.
The value of my US equity investments does not rest on earnings results or company news anymore. Share prices bob up and down like a cork on choppy waters with Trump’s daily tariff announcements. TOTO: tariffs on ‒ they tank, tariffs off ‒ they bounce back.
Profit announcements are irrelevant now, because they reflect a recent past that has been discontinued. Tariffs, which are taxes on imports, will not only make all purchases more expensive, they will also, to a certain extent, damage profit margins.
A new iPhone imported from China (90% of Apple’s phones sold in the US hail from China, which is threatened with tariffs of 145%) will soon double in price. Apple will have to choose to either sell less phones or earn less per phone.
What I exemplified with Apple is true for almost every enterprise in the US. All manufacturers are, at least to some degree, dependent on tariffed parts and raw materials like steel and aluminium. It is not just cars. It’s agricultural and industrial machinery, medical equipment, construction.
Even state-pampered defence contractors like Northrop Grumman, maker of the stealth bomber, and RTX (former Raytheon) warned their profit margins will take a $850 million hit due to already announced tariffs. Import levies will induce a Covid-like supply shock.
Businesses selling consumer goods will struggle to pass on price rises, or to find local substitutes. There are not a lot of coffee beans or bananas harvested in the US. Toys and household wares are almost exclusively imported. Penny stores, used to cheap imports from China, and usually the last refuge for hard-hit consumers, will suffer exponentially. Charity shops and second hand outlets may experience a boom.
It is one thing to hope for clarity on tariffs. Right now the US taxes all imports at an average rate of 25%, up from 2.5%. Tariffs are announced, withdrawn, and tabled again. But as more and more industries lobby for exceptions and offer tribute to Trump in one form or the other, it can be assumed that the mean average will come down. With time, and when the dust has settled, we will know who is privileged.
But it is another thing to understand how these tariffs will work through the supply chains: how many items can be locally substituted, or imported from lesser levied countries, and who will be saddled with the resulting cost increases.
An iPhone made 100% in the US would cost $3,500, so it may be worthwhile to import regardless. Many industries will demand clarity before making major capital investments in the US. Many will find it hard to recruit enough local labour skilled to compete with Asian hands while at the same time willing to work long hours for a Vietnamese salary.
Looking at market valuations and analysts’ forecasts I can’t help the feeling that stocks are still too optimistically priced and that worse is to come. It can’t be that jobs are harder to come by, consumers are fearful and the economy is forecast to retreat, yet companies have a jolly time minting profits. The fact that container and other cargo bookings from Asia to the US have already halved is certainly ominous.
Then there’s the issue with bonds. Despite dimmer growth prospects for the US, which would usually lead to lower interest rates, foreign investors are less keen to lend to the US, forcing interest rates higher (the equivalent of cheaper bond prices). If this were not enough, the US dollar is weakening, which usually does not happen when interest rates in the US go up. My portfolio now suffers currency leakage too.
Investing everywhere but in the US is – without a rules-based, free-trade arrangement agreed between all non-US countries – hardly much safer. Just a minute ago Europe was the sickling of the world.
I have therefore decided to stay put. I am happy that I had halved my Apple holdings in January, investing the proceeds in corporate bonds outside the US.
I am happy too that most of my Russian bonds have been redeemed at 100%. After this near-death experience I understand that US investments, owned by a vilified foreigner like myself, also represent a sizable legal risk. I cannot be sure not to be heavily taxed one day for the “privilege” of owning them, or impeded from transferring repaid capital freely.
Andreas Weitzer is an independent journalist based in Malta.