Donald Trump is getting serious and imposing temporary tariffs on his major trading partners. He is also escalating the war in Ukraine and increasing the pressure on Europe, which will hopefully soon be galvanized into unity with a new German Bundestag.
Anyone who thought that Donald Trump was craving disproportionate attention only in the first few days of his new term will have found themselves sadly mistaken in February. The Republican US President remains “on fire” and is unsettling a broad front. In contrast to the many symbolic political announcements in January, the latest escalations are disruptive in nature and definitely come with a negative impact on the economy.
It wasn’t a bluff after all!
First and foremost, we should like to mention the tariffs that have now actually been imposed on Mexico and Canada. With a 25% tariff on almost all imports from the direct neighboring countries, as well as the additional levies on Chinese imports, which have been increased to 20%, more than 40% of total US imports are affected. The negative effect on the economy and inflation should have dawned on him just two days later and so the levies for the direct neighboring countries are off the table again. However, this does not mean that the issue of tariffs and thus a possible trade war are off the table, as he has recently also targeted the EU and agricultural imports. The US economy continues to grow robustly, but in recent weeks some sentiment and economic indicators have surprised on the downside. For example, the much-heeded Atlanta FED GDPNow index – which estimates US economic growth in the current quarter on a weekly basis – recently fell by a surprisingly sharp degree into negative territory.
While one should not attach too much importance to individual indicators, the growth risks have definitely increased. Past performance is not a reliable indicator of future performance.
Source: LSEG Datastream; Data as of 5.3.2025
Europe’s (forced) comeback
Not only the tariffs, but the escalation surrounding the Ukraine conflict was also a turning point. The public exchange of blows in the Oval Office and, in particular, the cancellation of American military aid are putting pressure on Ukraine and, with it, the whole of Europe. It will be all the more important for Germany to have a new federal government and a new chancellor very soon after the general election, in contrast to Austria. In view of the ongoing changes, an agreement between Paris, Berlin, and Brussels would probably be more important now than it has been for decades. After all, the designated Chancellor Friedrich Merz is not afraid of thinking big – the arms and investment package of up to EUR 1.5 trillion, announced before the start of the coalition negotiations, is surprising. The EU Commission seems to be making a U-turn as well, having recently attracted attention with deregulation measures in the automotive industry. Perhaps Donald Trump will not only make America great again, but also Europe, albeit indirectly. On the trading floor, Europe has already made a successful comeback. While European equity indices are up almost 10% in the year to date, their American counterparts have recently even slipped into negative territory. The trend could continue, but in the long term, US earnings momentum still seems more advantageous. Regardless of the exact regional positioning, the past few weeks have shown that diversification in the portfolio context remains the order of the day.
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Legal note:
Prognoses are no reliable indicator for future performance.