Just the tremor of evidence last week that some of America’s largest debt investors were cooling on US Treasuries led to spikes in borrowing costs. The VIX market volatility index reached levels not seen since the financial crisis as the White House was forced into a major reversal in its tariffs policy, from appallingly high to just very high. A 90-day pause to the most egregious would at least allow some room for deal-making.
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If the president thought that with one leap he would be free, investors had other ideas – pulling out of less attractive and highly leveraged US debt structures as opaque to Trump as liability-driven investments were to former British prime minister Liz Truss. Markets jumped up and then fell again. The cost of servicing US debts remains at escalated levels.
Gold has been the winner in a world full of president-created risk – hitting record valuations over the weekend. The ultimate flight to safety, its ownership is a shelter against capricious politicians. As recession risk and inflation risk climb, demand for bullion grows, faith in an inert metal trumping gyrating markets.
Gold hit record valuations over the weekend.Credit: Trevor Collens
Traders – more fearful now of economic pain ahead – are pricing in three interest rate cuts in the US this year. “The next step is going to be, at some point, the Fed coming in – and that gives the next leg up for gold,” Dominic Schnider, of UBS Global Wealth Management, told Bloomberg. Gold and canaries in coal mines share more in common than their colour.
With the “bullion bounce” heading ever upwards, can Trump steady the ship? He continues throwing policies overboard, the US Customs and Border Protection agency announcing late on Friday that smartphones and computers would now be exempted from tariffs. The change means that 23 per cent of US imports from China will avoid the 145 per cent tariffs Trump insisted were necessary to stop the country “ransacking our factories”.
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Unlike other nations that the president claimed were “kissing my ass”, China has responded to his tariff policies not with offers of negotiation, but with retaliation. Concessions have come all the same, the president’s advisers correctly judging that voters are more concerned about the price of their iPhones and laptops than they are about the intricacies of Trump’s Make America Wealthy Again trade policies.
“Expensive iPhones and other high-end consumer electronics purchased mostly by the well-off/affluent are exempted; but the 80 per cent of good Chinese cheap consumer goods purchased by [Trump’s] left-behind blue-collar base at Dollar Stores, Walmart, Costco and other low-price retailers are slapped with a 145 per cent tariff,” Nouriel Roubini, an economist, posted on X after the latest announcement.
“Most of them are low-end, low-value-added, labour-intensive, good-quality, cheap Chinese products that we never manufactured in the US in the first place, or that we stopped producing decades ago as it is not to our advantage to produce low-end cheap goods!”
As the internal logic of Trump’s tariff war collapses, memes of AI-generated Americans sitting at sewing machines stitching trainers have been viewed millions of times.
Major policy shifts made at the dead of night do little to engender confidence, even if Apple’s Tim Cook will be delighted. A note from Capital Economics, a think tank, reveals that the overall effective tariff rate on US imports has now gyrated from 2.3 per cent last year, up to 27 per cent this year and back down to 22 per cent. No wonder the world is feeling “a little queasy”.
Trump has a romantic idea of America’s past, in his first term telling his adviser Gary Cohn, once of Goldman Sachs, that he saw “parts of Pennsylvania that used to be big steel towns and now they’re desolate”.
“That may be true,” Cohn replied. “But there were towns 100 years ago that made horse carriages and buggy whips. They had to reinvent themselves.” The president is at war with himself: one part isolationist, one part freewheeling, free-market dealer. At risk is the very system that made America so successful and wealthy.
The Telegraph, London
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