Please see below article received from EPIC Investment Partners this afternoon, which provides further input on the effects of Trump’s tariffs.
The Trump administration’s sweeping tariff regime is creating a perfect storm of economic challenges that could fundamentally reshape global finance. With weighted-average import duties soaring from 3% to approximately 25%, the US economy faces an imminent stagflation crisis—one the Federal Reserve appears ill-equipped to counter.
This economic predicament will likely manifest itself as US inflation is expected – by some commentators- to reach as high as ~5% within the year, driven by both direct import price increases and opportunistic pricing from domestic producers shielded from competition. Simultaneously, economic growth faces severe headwinds as businesses delay investments amidst trading uncertainty and consumers cut spending.
The economy’s structural capacity is further undermined by aggressive deportation policies and immigration restrictions shrinking the labour force, while productivity growth stalls. These factors could slash sustainable GDP growth from last year’s 2.5-3.0% to a projected anaemic 1.0%.
The Fed’s traditional toolkit may prove inadequate for this scenario. While Chair Powell has suggested patience on rate hikes if inflation proves temporary, this approach carries substantial risks. Inflation has already exceeded the 2% target for four consecutive years—a fifth year with accelerated price growth could permanently unanchor inflation expectations, potentially requiring drastic intervention reminiscent of Volcker’s 20% fed fund rates in the early-1980s.
Compounding these domestic challenges, global de-dollarisation could accelerate, particularly if the Fed withholds dollar liquidity during financial stress. While such a move would require an exceptionally high threshold, it could trigger serious global and domestic repercussions. A dollar shortage might initially strengthen the currency but could ultimately destabilise US markets. Though the Fed is independent, political pressure could steer decisions, with swap lines used as leverage. The irony is clear: isolationist policies and tariff threats may end up accelerating the very de-dollarisation they aim to prevent.
Despite these concerning developments, significant opportunities remain. Countries accelerating de-dollarisation efforts create openings in alternative currency markets, while companies adapting supply chains present investment prospects in emerging manufacturing hubs. Additionally, the volatile environment offers strategic entry points for value investors as market overreactions create mispriced assets across various sectors.
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Chloe
08/04/2025