Investment will suffer in the age of Trumpian uncertainty

A month ago I wrote that, regarding the current Trump administration, "[t]he only certainty is that the uncertainty and chaos will continue to reign, with damaging consequences for the world's growth prospects".

I think that was pretty accurate. I mean, we're now only a little more than 24 hours away from Trump's full 'Liberation Day' tariffs coming into effect, yet we still don't know if it's even going to happen—the best Treasury secretary Scott Bessent could offer this morning was:

"They are negotiable but not a negotiating tactic".

Right—except that's the opposite of what he said only a few months ago.

The only thing we do know at this late stage is that the universal 10% tariff on all imported goods (including from Australia) kicked in on 5 April, but the much more extreme—and completely arbitrary—country-specific tariffs aren't due to begin until 2:01pm AEST tomorrow update: today.

Trump has a few options available to him. While no one can know for sure until it actually happens, he's going to either:

• let the tariffs come into effect in their current form, crushing markets and the global economy;
• press pause to allow more time to "negotiate" deals with individual countries; or
• announce deals that roll back some of the more extreme tariff rates to something closer to 10% (with the exception of China and perhaps the EU, which have announced or are voting on retaliation).

The joke of the whole "deal" narrative is that the obstacle to trade agreements was never other countries, but the US itself. The EU offered Trump a zero-for-zero deal weeks ago. It was the US that pulled out of the Trans-Pacific Partnership.

But if that's what it takes for Trump to save face, declare victory and move on, then so be it. My personal hunch is he's going to stick with the 10% floor (remember, Trump loves tariffs) but wind back most of the country-specific ones which, while still bad, would be nowhere near the 'Liberation Day' carnage.

Now, I could be completely wrong—Elon Musk, who was joined at the hip to Trump for much of the past few months, appears to have been so blindsided by the tariffs that he started tweeting videos of Milton Friedman! The reality is that no one really knows what's going to happen in advance, perhaps not even Trump himself, who is probably simply revelling in being showered with gifts and attention from world leaders.

Indeed, for those hoping for clearer air moving forward, this isn't going to stop with the 'Liberation Day' tariffs because Trump just flat out detests trade. Later this month his administration is planning to levy large port call fees not just on ships made in China, but also on companies that even own a single ship made in China, a move "that will hamstring exporters [and] would be a true self-own"—and is no doubt still "negotiable".

The Trump administration is truly embarking down the road to a Maoist-style autocracy and, as the NYT's Michelle Goldberg wrote, people really shouldn't have been so surprised:

"In his 2018 book 'Fear,' Bob Woodward reported that Trump scrawled 'TRADE IS BAD' in the margin of a speech he gave after the G20 summit. It makes sense that Trump would see things this way. When he makes sales, whether of Trump University courses or Trump-branded cryptocurrency, he is usually taking advantage of the buyer, and he views global trade through the same zero-sum lens."

The difference between Trump 1.0 and 2.0 is the adults that were in the room the first time around are no longer present. As just one example of the shenanigans that took place during the first term, Gary Cohn – Trump's former economic adviser – reportedly snuck into his office one night and stole a draft letter that would have terminated the United States-Korea Free Trade Agreement.

There's zero chance that his current advisor, Peter Navarro, would do the same—if anything, he'd be pushing Trump to rip up every trade agreement ever signed by the US government.

But perhaps even more damaging than the ever-expanding list of bad policies (if you can call them that) being unleashed by an unchecked Trump 2.0 administration is the method by which they're being rolled out, which is creating enormous uncertainty—anathema to investment.

Trumpian uncertainty reigns supreme

There is nothing certain about a Trump administration. He infamously makes policy decisions on the fly, even claiming to have come up with his no tax on tips idea after speaking to a waitress at his Las Vegas hotel, then quickly making it part of his election campaign.

Trump also "wants to be unpredictable", believing it gives him an advantage in deal making:

"Trump wants to be unpredictable. By disposition or personality type, he enjoys being impulsive and difficult to deal with. But over the course of his life, and especially his first presidency, he came to realise that the less people know what he's going to do, the better off he seems to do. Regardless of whether that's better for the country as a whole, many advantages for him personally accrue from being this unpredictable force — inputs come in, and we don't know what’s going to come out the other side.

He believes this gives him negotiating leverage. He believes that this makes his strategies more likely to succeed. There's something self-serving about this, but he has taken this disposition and elevated it to an official philosophy."

There's some truth to that—revealing your plans to an adversary is never a good idea. But is Canada really an adversary? Cambodia? The penguins on the Heard and McDonald Islands?

What if you run a business? Not knowing which way the tariff winds will blow today, tomorrow, or a year from now is a huge problem. Firms make investment decisions for the long-term; factories last for decades.