President Trump’s policies have shaken the markets. Protect yourself first, and, only then, take advantage of investment bargains, our columnist says.
Uncertainty has defined financial markets this year. It’s not going away because the source of the problem is the Trump administration.
Tariffs are the main financial issue. President Trump has sometimes backpedaled when the markets have plunged. But he and other members of his administration have made it clear that higher tariffs of some sort are here, even though they are unpopular and most economists say they are a mistake. The risk of higher inflation and slower economic growth, along with strained relations with China and with many erstwhile allies, now appears to be a fact of life.
Mr. Trump says he is at heart “a tariff man” and wants to change the world. It’s wise to believe him. In fact, I think it’s time to accept that disruption is here to stay. This is causing problems for investors. Yet even in times of turmoil, there are new investment opportunities.
Bonds are a case in point. The Treasury market has gotten considerable attention lately because, in response to the tariff announcements, yields rocketed and prices sank in a manner that has, in the past, been associated with full-blown financial crises. That market has calmed down a bit, but the chances of further eruptions are high. They may even be set off by other parts of the Trump policy tool kit — say, the president’s goal of extending tax cuts that expire this year and adding new ones, enormously expanding the federal budget deficit and the Treasuries needed to finance it.
Another administration policy goal may be causing problems for bonds: weakening the value of the dollar to make U.S. exports more competitive and imports more expensive. (Tariffs, of course, do that to imports, too.) In a densely written paper published in November when he was still in the private sector, Stephen Miran, now the head of the Council of Economic Advisers, made unorthodox proposals for accomplishing this feat while, at the same time, maintaining the dollar’s role as the center of world finance. Achieving this would be difficult under the best of conditions. But adding this ingredient into the volatile mix of administration goals has undoubtedly unsettled the bond market further.
Global investors are already having second thoughts about the wisdom of holding U.S. dollars and Treasuries, and the dollar’s value has been falling. As Nellie Liang, former under secretary of the Treasury for domestic finance, put it in a piece for the Brookings Institution, some investors speculate that the cause of the furor in Treasuries comes from “increasing doubts about Treasury securities as the pre-eminent global safe-haven asset, consistent with the decline in the dollar.”