When the uncertain becomes certain

New twists in the trade war waged by the Trump administration against the rest of the world. The latest episodes to date in this exhilarating series. Wednesday 28 May: to general surprise, a three-judge panel of the Court of International Trade blocked the “reciprocal” trade tariffs announced on “Liberation Day”. Back to square one on Thursday 29 May: the Court of Appeals for the Federal Circuit stayed the application of the previous day’s judgement, while it considers the merits of the appeal.

A new legal front has opened up in this war and, with it, a race to the peak of the US justice system – the Supreme Court. This legal battle is based on the scope of the powers of the White House versus those of Congress. Whilst the outcome is currently uncertain, its economic consequences are less so – this prolongs a period of indecision on a number of fronts.

Firstly, on the commercial front, how can companies commit to ambitious industrial projects whilst totally in the dark as to the cost of foreign goods in the future?

For households, price tags have started to rise in the retail sector, which is already passing on part of the effective hike in trade tariffs. How should consumers behave, when price rises may reverse? Or, on the contrary, what if tax levels were to rise again due to a failure to reach agreement with China or the European Union?

Then there’s the diplomatic front. On what basis should trade partners conduct negotiations with the US? On the basis of the rates announced on 2 April? Or based on a lower rate, if Congress gets its say on the scope and level of taxes?

Whilst negotiations on the 2026 budget are in full flow in the US Senate after its approval by the House of Representatives, what shape should it take, given that a large proportion of the income uplift is scheduled to come from the hike in trade tariffs, which is today uncertain?

And on the timing front, whilst part of the trade tariffs are suspended, what will be the fate of most other countries after 8 July?  For the European Union from 9 July? And for China after 9 August?

Lastly, this situation remains just as Kafkaesque for the US Federal Reserve. Unable to anticipate the impact of the trade war on inflation or growth, it seems doomed to adopt a wait-and-see approach when confronted with such confusion.

Even if financial markets have, to date, been relatively resilient in the face of such uncertainty, the realisation is nonetheless setting in that mistrust has changed sides. Whilst US exceptionalism was all the rage prior to the inauguration of Donald Trump, the “anything but US assets” approach now has the upper hand, with a falling dollar and rising US government bond yields, coupled with a preference for non-US equities. One thing is certain: there is a real cost to uncertainty.

Final version of 30 May 2025, Clément Inbona, Fund Manager, La Financière de l’Échiquier (LFDE)

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