Order from chaos

Chaos reigns in Washington, with often unpredictable announcements on import duties being fired off in all directions. Among the most recent, Brazilian products have been hit with a 50% tariff from 1 August, despite the fact that the US runs a trade surplus with the country! Confirmation – was there ever any doubt – that any economic rationale holds little sway over decisions in Washington.

Yet the market remains unperturbed. As of 10 July, US equities are up over 4% over a month, emerging equities barely less, and European equities are stable.

The initial explanation is that the market does not believe the tariff announcements. Having learnt from the experience last April of the grotesque “reciprocal tariffs” announcement, that even the most strongly emphasised measures can be called into question the very next day or postponed indefinitely, investors now pay little attention to presidential announcements. They expect economic reason to win out at the last moment. So the Brazilian equity market fell by just a few percentage points on the surprise announcement of 50% tariffs, remaining stable over the month. Another example is the market for copper imports to the US, also under the threat of 50% duties, which is currently building in only a part of the additional local costs due to these taxes. This implies that market participants do not appear to believe that this tax will be implemented in full. In reality, its implementation appears counterproductive, as it would deliver a major blow to the consumption of imported copper in the US, which is vital in many respects. Indeed, copper is essential to the construction of cars or electrical infrastructure, as well as to the construction of data centres, which stand at the core of US growth. This tariff would therefore hinder domestic productivity. Yet in Washington, the stance on long-term autonomy in industrial metals is the be-all and end-all, even if it will take years or even decades to bring a mine into production. By then, requirements will only have grown, especially if construction is slowed, which pushes the prospect of autonomy even further out and renders it unrealistic.

An alternative explanation is that the market has got its bearings and is now organised for the chaos, counting on companies’ ability to adapt and reorganise their supply chains or to offset excess costs. In much the same way that tornadoes are stationary structures that emerge from meteorological disturbances, as long as they receive thermal energy and dissipate disorder (referred to as entropy), the current market will emerge from the Trumpian chaos by feeding off the energy from the buy flows of Wall Street. Such a “dissipative” structure can last for as long as it receives energy. Based on this – very approximative – comparison, the whirlwind in markets could persist for as long as investors and companies are hungry for equities – which rising markets encourage further. So order emerges from the chaos.

The downside to this phenomenon is that a rising Wall Street can no longer play the role of a safeguard against the gyrations of the Oval Office. In contrast, after the initial announcement of “reciprocal” tariffs, the nosedive of markets, especially the bond market, certainly helped encourage the about-turn of the President who, after a couple of days, granted delays for negotiations to take place and softened his tone. If the market no longer falls clearly on the back of new tariff announcements, what force will be able to moderate the actions of the US President? International institutions carry no weight with him. US Federal judges, who have tried to use the law to intervene, have seen their power restricted by the Supreme Court, which is broadly under the thumb of the Republicans. As for the US Federal Reserve, the markets’ last defence, it certainly maintains a far-reaching and independent stance. But aside from the fact that it has no power over trade tariffs, it is subject to a constant campaign of destabilisation by the White House, which has made no secret of the fact that the next Fed Chair will be a Trump adherent. Today it looks as if there is nothing that can counterbalance the Trump tornado.

Nothing… except the economy itself. If there were a clear deterioration in the economy – as is likely given the rise in trade tariffs – it could act as a wake-up call for economic reason. But this process will not be a smooth one, and one form of chaos will give rise to another – possibly preferable over the long term.

Final version of 11 July 2025 – Alexis Bienvenu, Fund Manager, La Financière de l’Échiquier (LFDE)

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