A Bridge Too Far: Will the US Tariffs Bring About a New Age of Prosperity for the US? Or will the Aggressive Nature of the Tariffs End the US World Economic Supremacy?

Uncertainty. No other word encompasses the opening of 2025 and continuing into the second quarter. Uncertainty is weighing heavily on markets, business leaders, and ordinary citizens derived from the current administration proposing unconventional and somewhat opaquely defined policies. Specifically, trade has become a razor-sharped priority, deployed through tariffs. This focused priority is creating ongoing uncertainty, and the recent trade policy implementation announcement did not reduce uncertainty as was hoped.

However, anticipating this uncertainty last fall, we invested in Gold, Swiss currency and foreign-related assets in the 4Q 2024 continuing into the 1Q 2025. As the tariff policy unfolds, unless there are clear indications that the US will benefit, we will very likely continue increasing our Gold, Swiss currency, and foreign asset exposure. The primary reason for this perspective? Most other regions in the world are relying on stimulus, deregulation, and tax cuts to insulate themselves from the US while the US policy appears to be focused more on increasing overall costs and, ultimately, raising taxes (quite the opposite of the rest of the world). We are hoping the tariffs are just a negotiating tool; permanent tariffs and trade wars have no winners.

The administration narrative discussing tariffs has been contradictory, suggesting using tariffs as negotiating tools while also being considered as a permanent part of trade policy. The administration also stated that tariffs will reduce illegal drug activity while simultaneously stating the goal of tariffs is to bring jobs back to the US. Yet, an overlooked reality is that tariffs primarily impact only US focused businesses. Our US based business contacts report tariffs as a major negative issue; yet, in conversations with our overseas business contacts, their target markets are generally not in the US, or the US is a small exposure reducing the impact of tariffs.

Over the years, and particularly since the COVID supply chain interruption, the world has changed, and many businesses worldwide can continue to run profitably with the US as a diminishing allocation. The US currently continues to be a major worldwide trading partner and there is a co-dependency between the US and world economies. However, just as corporations and countries found ways to work around the disruption in supply chains caused by COVID, we believe world markets, including the US market, will find ways to work through the new tariff regime. As with COVID, it will take time, but given the experience of COVID, companies and countries will find ways to navigate the tariff regime and ultimately find different paths to profitability and, needing to keep its citizens gainfully employed, will be motivated to do so in a timely fashion.

Tariffs can also serve as a motivator to look elsewhere. There is potentially a real cost if the US pushes too hard on tariffs.  The world may learn that the US is a replaceable cog in the giant machine called the global economy. Let’s take a minute and think of the US as an amazing brand called USA. Billions of consumers buy products from US companies (even if they are not made in the US) because of what the country means to so many people worldwide.  As the current administration antagonizes other nations, the US is antagonizing the people of those countries and compromising the value of Brand USA, which brings in trillions in sales annually and raises the standard of living for every American. Hopefully, this tariff struggle is short, but we are diversifying and will likely continue to diversify assets during the coming quarters.    

Looking at all that the administration is trying to do in a matter of months is reminiscent of the film A Bridge Too Far. For those not familiar with the film, it is about the Allied attempt during WWII in the fall of 1944 to cross the Rhine River and hopefully end the war in Europe before Christmas by capturing several key bridges in Belgium and the Netherlands.  The key to the plan succeeding relied on very aggressive assumptions:

1.)   The ability of airborne troops to capture and hold those key bridges over the Rhine.

2.)   The success of the Allied armored spearhead (formation of armored vehicles) to quickly break through the frontline linking up with the spread-out airborne units.

Unfortunately, as the campaign unfolded, it was quickly discovered that the timetable was too aggressive, and German resistance was much stronger than anticipated this late in the war.  In the end, the operation failed to capture the last and most important bridge over the Rhine. Sadly, it was not until 6 months later that the Rhine was crossed bringing about the end of the war in Europe a month later. Returning to 2025, the administration is trying to do a tremendous amount in a very condensed timeframe, creating uncertainty and raising the concern – will the assumptions prove true?