How tariffs influence markets: A practical perspective

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Alastair Tyler

Welcome to today’s webinar on tariffs, treasuries and Trump. It’s my pleasure on behalf of Intuition. As I say, my name is Alistair Tyler.

I’m the Head of Learning here at Intuition and I will be moderating or hosting this session and just to confirm how the session is going to run in a moment, I’m going to hand over to our lead presenter, Peter Leahy, who is an expert in all matters relating to capital markets. He’s a frequent presenter and panellist at a number of conferences and various audiences and so I’m sure Peter will be able to share lots of interesting insights with us today. So Peter is going to lead you through a presentation on this topic which will last around 30 minutes and then that gives us good time of around 15 minutes for some question and answers.

So we would certainly encourage you, if you have any questions on this whole topic, please post them in the chat function. We will be curating those throughout the session and then, as I say, we will come to as many as we can towards the end of the session. So there we are.

Thank you. So at this stage I’d like to hand over to Peter. Thank you.

Thank you Alistair. Welcome everybody. Thank you for your kind introduction Alistair.

Peter Leahy

My name is Peter Leahy. Just a couple of words about what we’re doing before we sort of start in earnest. So as you can see the title Tariffs, Treasuries and Trump.

President Trump has, from the day of his inauguration, introduced some really quite revolutionary policies and ideas which have created or brought about some strong reaction both from politicians within the United States and outside and also strong reactions from markets, for good and for bad. Just to emphasise the purpose of this webinar today is to talk about the impact of what we’re seeing so far from the Trump presidency. Not really to talk about politics. We don’t want to get political. There’s plenty of hot air about and we don’t need to contribute to that. We’re more concerned to talk about the impact on global markets.

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Peter Leahy

Just by way of background to what we have at the moment in terms of the markets, it’s fair to say that a lot of what is happening or the pronouncements from the White House about, for example, tariffs and about some things that he’s said also, the president, has said quite directly about the dollar and some of the countries that would like to replace the dollar, really are all against the backdrop it has to be said, and it’s hard to discuss any of this without recognition of the fact that the national debt of the United States is at an all-time high level and that of course is a limiting factor from the point of view of what any US government can do at the moment. It’s also an important bit of background from the point of view of how markets view the reactions from that government.

I think it’s fair to say that everyone recognizes, and not least President Trump, that the trajectory of the US national debt is unsustainable, it has to change, a way has to be found to moderate this.

Not least because the amount of refinancing required, the US national debt is relatively short in tenor a lot of it and that gives them a lot of pressure in the short term to refinance quite a few trillion within the next 12 months and so the reputation and the sentiment internationally and domestically towards the US treasury market is vital in that respect because if people feel that they’re buying into something that is well maintained and sustainable that they will do so.

For a lot of investors there is also the possibility of not getting involved or not participating in refinancings, not participating in auctions and of course from the point of view of the Federal Reserve, their job is to maintain stability of currency and of employment and actually to protect that, we’ll talk more about that in just a moment but the government have a slightly different point of view, or the treasury have a slightly different point of view here from the Fed, because the treasury of course are concerned with keeping this debt financed, that is less of a concern of course for the Fed because their brief is on inflation and employment.

The debt of the US, United States of America, is almost entirely in US dollars, that is both a privilege but also a risk because if investors, particularly international investors, go off the idea of the dollar then they most likely will go off the idea of participating in the US treasury market auctions and refinancings, more about that in just a moment.

“Trump 2” – beyond deregulation, who can say?

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Peter Leahy

Another thread to this which is relevant and we’ll tie these together when we come to talk a bit more about the role of the United States dollar as a reserve currency, a lot of this goes with, if you like, the power and prestige of the USA, not least from being the central underpin of organizations like NATO and indeed of the post-World War II financial infrastructure, the World Bank, IMF and so forth, headquartered in the United States of America.

There have been some signs that President Trump wants to rather step back from that role, that was made quite clear in speeches here in Europe where it was suggested that much more of the responsibility needed to be on the shoulders of European governments, and I think that has been widely accepted and perhaps was overdue, but perhaps taken as quite a shock all the same. And then there have been other pronouncements from the US government such as, and these have been tempered since their first announcement, but one of the first reactions that came from the Vice President about the India-Pakistan conflict was to say that it’s just none of our business. So, if this process were to continue, and we don’t have or we don’t expect to continue enjoying what might be called Pax Americana that we’ve enjoyed for the last 80 years, then it becomes Pax Who.

There are, of course, as we know, a couple of countries who believe that they should step into that role. I think from the point of view of a lot of investors around the world, the prospect of a change in this is alarming, at least unsettling, some would say alarming.

So those two things, more than anything, are a backdrop to this, the indebtedness, the national debt of the USA currently, and many would say long overdue piling on of pressure to Europeans particularly to take much more or pick up much more of the bill, if you like, for international defence.

What is the AML relationship like between the US and Europe?

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Peter Leahy

Some of these policies, and I think in Europe, this can be forgotten because from a domestic point of view within the USA, there are quite a lot of aspects of the new government’s policies that are popular. If it is believed that tariffs will bring jobs back to the United States of America, particularly manufacturing jobs, then in the short term, at least, that makes that, and from what I understand, that this is the case. It is quite a popular policy domestically.

Similarly, the Department of Government Efficiency, DOGE so-called, I’m joking here with Musk and the chainsaw, although I don’t need to joke because I guess it was Elon Musk who made the joke. You know, that also is seen, I think, by many within the United States as being long overdue and necessary, and quite likely some of it is.

However, these in the longer term may be difficult because tariffs, for example, may end up causing inflation. That is to say, the tariffs that were announced on the 2nd of April, much of which has been later increased but then wound back from, culminating in recent announcements about what’s happening between China and the USA on tariffs, which is a lot calmer and a lot more dovish than we’ve been hearing, than we were hearing, you know, six or eight weeks ago.

The DOGE and the chainsaw, again, on the face of it, the reporting of that sounds, I think, to many quite exciting, particularly perhaps to the US constituency of that government.

Having said that, of course, you know, the provision of services, the availability of important services and, of course, the laying off of quite a lot of federal employees, not least veterans, which, of course, paradoxically are, from what one understands, an important part of President Trump’s constituency. Those two then have pluses and minuses and they’re seen as being, you know, short-term positive and popular anyway, but recognized widely that there could be longer term difficulties.

The one that all voters seem to like, or there’s a lot of consensus on, is about tightening of border control, repatriation of illegal migrants. It’s hard not to notice from the perspective of someone on the other side of the Atlantic that some of our governments in Europe have picked up on the zeitgeist here and are bringing their own policies of a resonant and similar nature and have noticed that the voting population have no difficulty with those.

Tariffs return: What history tells us

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Peter Leahy

I think there’s been a lot of focus on China and it is worth particularly talking about when we talk about markets and we mentioned a short while ago the U.S. Treasury market, it’s worth picking up on China and just drilling down a little bit more.

The U.S. and China do seem to have a kind of economically symbiotic relationship. The Chinese government is by far the largest holder of U.S. debt. This is not immediately obvious to all.

I think the official statistics of non-U.S. holders give Japan, then China, then the United Kingdom, then Belgium, then Luxembourg. But if you drill down a bit, you find that the numbers for UK, Belgium and Luxembourg include custodians and clearers and much of which is likely to be additional People’s Republic of China holdings, if you will, held indirectly, which very likely takes the total for China to be considerably larger than that of Japan.

I say all this because, you know, it is not surprising that some in the U.S. and internationally worry that were China to talk about selling their holdings of U.S. Treasury and there have been some rumours and hard to tell whether the rumours have been encouraged by anyone internationally or whether they’ve formed part of the diplomacy. It is hard to tell. But there appears actually to be considerable restraint by the Chinese not to go into that kind of conversation because it would be really quite a difficult one for the U.S. government.

The other side of the coin, of course, is this whole business about the China and the blame list and some quite strong language from the U.S. government about the theft of jobs or stealing our jobs and so on.

One of the problems with the tariffs, most economists seem to agree, is that they are a very, very blunt, heavy, blunt instrument and need to be applied, if they’re to work, with considerable precision. It did not appear that the formula that was being used to calculate those tariffs on the second, or the ones that were announced on the 2nd of April, involved a great deal of precision. They seemed like quite a blunt instrument.

There’s also considerable doubt as to whether the tariffs could work in terms of quickly restoring particularly manufacturing jobs to the United States. I think there’s been a misunderstanding about what China has that has caused manufacturing to become so big and successful in China. I think a lot of Western commentators have focused on so-called cheap labor.

Actually, it turns out it’s not so much that, although I’m sure costs per hour are lower in China than in many other places, certainly Western countries like the EU or the USA. We’ve also discovered that actually China has skilled labour and critical mass sort of locations with skilled labor appropriate to certain industries. It’s been said that, for example, Apple have been trying to move some of their manufacturing to other places, notably India, for a number of years, but actually have not succeeded in finding quite the same critical mass of appropriate skills.

So there’s a symbiotic relationship between the USA and China, but it’s actually not one that can be easily resolved by either, and any easy solution would be most likely quite destructive for both of them. The Chinese don’t want to sell their treasury holdings in a hurry because it will involve most likely very large losses and hard to explain to one’s population.

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Peter Leahy

What we saw, and we’ve certainly now, from what we understand, this has been wound back from, at one point the president was making noises about how quickly can I sack the chairman of the Federal Reserve and get rid of him and nothing will be soon enough and so on, which was alarming.

Alarming for a lot of international investors in the United States because the Fed is regarded as being an independent, it is an independent body, it has considerable international credibility that goes with that independence. And we in Europe know this, we’ve had central banks controlled by governments on and off in various places and doesn’t usually result in a great deal of investor confidence in the long term because what politicians want a central bank to do in the short term doesn’t always chime well with credibility for those organizations.

I think perhaps it’s been also misunderstood by some within the U.S. administration that the part of the yield curve that the Fed can control is the very short end, whereas if a lot of important rate setting in the U.S. economy, for example, 30-year mortgage rates, are set from much longer parts of the yield curve over which the Fed has no direct control at all, that’s set by the market and the market will provide relatively modest 30-year rates if the perception is that the Fed is credible and that their policy is credible.

If there’s a perception that the Fed is doing what they are being arm-twisted into doing by politicians, something quite different would apply. And in fact, it is worth noting, and we’ll see this shortly, that the U.S. yield curve has, to use bond trader language, steepened. That is to say long-term rates have gone higher relative to short-term rates since January this year, so in the last four or five months.

So the heavy dark line is the most recent U.S. Treasury yield curve, and the other three dotted lines are from 1, 3, and 6, and I think 12 months back.

And you can see a fairly simple picture. We have an expectation of considerably lower rates and happening sooner than has been the case for a while. But that has come with a rise in the longer-term part of the curve, so a steepening of the curve, as traders would say.

And this is not kind of a desirable outcome from the point of view of a president who wants to reduce costs for the U.S. consumer, reduce costs for home buyers, and so on.

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Peter Leahy

Another picture, really a similar picture, but that tells a similar story.

This is perhaps one of the most popular exchange-traded funds that focusses on longer-term U.S. Treasuries, TLT, it’s called. Now, for a lot of commentators, the economic commentators, the debate right now is, you know, is the U.S. heading towards a recession? When will that come? No one is talking about a sort of pickup in economic activity towards boom times. It’s, you know, is there going to be a recession or just a bit of a slowdown? How much, how deep, and so forth.

Now, these are exactly the circumstances in which most typically you would expect to find long-term U.S. Treasuries rebounding in prices. People get confused about it because one commentator talks about prices, another commentator talks about yield. Here I’m talking about U.S. Treasury prices.

We would expect to be seeing these rebounding and long-term Treasury yields thereby falling. We’re not quite seeing that. And that’s what I wanted to show with this picture.

The prices of the price of this particular, for example, TLT, U.S. Treasury ETF is not far off its all-time lows still. And I think this is the bond market rather begging to hear a different kind of story out of the White House. It does not want to hear the Fed being pressured on interest rates this way or that.

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Peter Leahy

A not dissimilar story for the dollar then. So we’ve seen the dollar gradually weaken.

This is a chart showing the trade-weighted dollar index. So this is made up of euro, Japanese yen, British pound, and so forth, weighted by trade activity between the United States and those countries. And you can see, this is from the middle, this is 2025.

The dollar has fallen steadily so far in 2025. I say so far. We’re seeing the signs of a modest pickup in the last month or so that may well continue.

We hope it does. But this fall here does reflect concerns that people have had about the stewardship of financial policy in the United States.

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Peter Leahy

A not dissimilar picture then for the stock market. I say the stock market. And of course, the part of the stock market that everyone really talks about at the moment is big tech.

And so I’ve shown the Nasdaq 100 here, not the Nasdaq composite, the 100. And this has been considerably impacted by a lot of the talk and indeed action on tariffs. The biggest move we’ve ever seen or seen in a long time in one day, this green line going up here, mid-April was the day it was announced that there would be a 90-day moratorium on the imposition of a large amount of those tariffs that were announced on the 2nd of April.

‘Tape bombs’ prompt market gyrations

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Peter Leahy

To look on it kindly, we’ve seen some quite surprising announcements out of the Trump administration.

Some would say that the motive has been to kind of tweak the tails of people who had got way too complacent in a lot of places. And if that was the intention, I would have to say it worked. We’ve seen a certain amount of winding back from some of the more, how can I say, hawkish announcements and pronouncements.

The stock market seems, at the time of talking now, to be in reasonably good shape. The dollar is in reasonably good shape. The yield curve and the treasury market, I’d say have got a little bit of a sore head. We’ll see how that goes.

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Alastair Tyler

Now, the question I want to start with was really just looking at things from a business leader’s perspective. And what business leaders often talk about is, especially if they want to make longer term investments, they need stability and confidence, not too much volatility. And yet one thing that’s kind of clear from the various charts that you’ve been showing us, and obviously the daily announcements that come out of the White House, and Trump’s general desire to sort of hog the headlines, is the opposite. So what’s your sort of perspective on that? Because clearly that must be having an impact.

Peter Leahy

Yeah, as I was saying, I think, you know, I think a reasonable and not overly charitable interpretation is to say that President Trump may have felt that a certain tweaking of the tail was overdue and necessary and cause people to have a rethink. You phrase your question, Alastair, thank you from a sort of business management point of view. And yes, I think we’ve had quite a lot of complaints from people in that sort of role that this has made life quite difficult from the point of view of planning, the allocation and deployment of resources.

Not least, we’ve seen supply chains a little bit, from what I understand, a little bit perturbed by tariff announcements and then taking off of tariff announcements. Well, I don’t know how important, but an example of this was Jaguar Land Rover, a UK-based vehicle manufacturer announced a couple of months ago that they were ceasing all export to the USA because of the tariffs that had been imposed or were to be imposed. They have now completely changed that plan and, from what I understand, now go back to exporting.

But I can only suppose that, from the point of view of someone actually running a business like that, it does become very difficult indeed. I’d say two things. A lot of businesses could not go on with months and months of this. It just becomes impossible.

Anecdotal evidence, those two words perhaps are an oxymoron because it’s anecdotal rather than evidence, but there is some suggestion around that the path to the White House has been well-worn by business leaders going there to really explain their case, put their case and just explain that some of these announcements, both the announcement and indeed sometimes the rather precipitous and quick then-retraction of the previous announcement, make it quite hard to plan business. If we believe that those kind of meetings did happen, then I think we’ve got to believe that, in that case, the administration appears to have listened.

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Alastair Tyler

We’ve spoken quite a bit about the impact on manufacturing, just maybe to look at the impact of the tariffs on the service industry, say, compared to the manufacturing industry.

Peter Leahy

Yes. I think the manufacturing industry is, if anything, it’s all quite difficult because things are so internationalized. If you ever, which I don’t, pull up the bonnet of your motor car and have a look, I don’t see anything I recognize at all, but much of it comes from all points around the globe anyway, and you then start to question how difficult it must be to impose tariffs unless it’s only on completed manufactured goods.

From the point of view of services, I guess the best known example of services or the much talked about in Europe has been the proposed tariffs on the movie industry, and that, when you drill down into it, or try to drill down into it, you see that it becomes, you just can’t imagine, or I can’t imagine, and people I’ve spoken to can’t imagine how it would get applied, because any time you watch a movie, these days it comes from a lot of different places, it’s shot in one country, the talent and principal actors and so on come from all different places, and it becomes really quite difficult to describe this or that product as being a French film, or an American film, or an Australian one.

Alastair Tyler

Sounds like it could be good news for the legal profession, if not maybe for other professions.

Peter Leahy

Oh yeah, huge.

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Alastair Tyler

One of the things I wanted just to kind of, also a question coming in, around this whole aspect of risk premium, so obviously for a long time, and really the world economy, if you like, depends on the role of the US dollar as a reserve currency, and we don’t really have an alternative. What’s your perspective on that, in terms of the confidence, and is it now likely to prompt other countries to look at alternatives, such as crypto, digital cryptocurrencies, etc.?

Peter Leahy

Yeah, I think that, thank you for that question, that’s one of the most interesting aspects of this.

For the last 20 years, we’ve seen the dollar trade at an important premium to other currencies, because it is much demanded by banks and international financiers. If you’re a French bank involved in financing a company building a bridge in Indonesia, no part of that is happening in the United States, but you can almost guarantee that the financing is being done in dollars, which requires the French bank then to access dollars. So we’ve seen, for years, an important premium attached to the dollar.

It causes distortions in the markets. The pricing of FX swaps and of cross-currency swaps includes a basis swap adjustment, a departure away from what simple economic theory calls lending and borrowing across currency, giving a definition to the forward FX levels. I think if the dollar, and it appears that President Trump wants to do this, if the dollar becomes something more like another currency, just another currency, and not the sort of central linchpin of international finance, then that premium will most likely erode or even go, and we’ll have a parity, if you will, in terms of those ideas of covered interest and so forth, vis-a-vis the yen, the pound, the euro, and so forth.

Actually, perhaps a simpler and more efficient international market in some perhaps limited respects.

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Alastair Tyler

It appears that the 47th President is thinking long, long term on manufacturing, as it takes a long time to address circa 40 years of hyper-globalization and offshoring of certain industries. So in order to correct these fundamentals, it’s going to take 10 years plus time he doesn’t have. Is this a pipe dream? So is it all going to end in tears or certainly a very significant need to kind of accept that this is just not going to be the reality?

Peter Leahy

I don’t know what it, I mean, I don’t know what it would take to move all of that manufacturing back to the United States. I suspect one of the problems, and we know that, I’m, you know, I’m based in England. What would it take to bring a ship building industry back to Newcastle on time? Well, I think an awful lot more than any government could ever hope to achieve. Because once an industry like that has gone, you lose the infrastructure that goes around it. And people get used to doing other things.

One other problem that we had in this country, and I think it’s fair to say that the US has had the same, is that, I say a problem, many people would describe it as being a privilege and a benefit, but the US manufacturing worker earns more per hour and has a lot of benefits, be they health, pension and so forth, that I don’t think the typical employee of a Korean or Chinese manufacturer quite enjoy the same thing.

So, it would require a rather important cultural shift and economic shifts to really to believe that manufacturing jobs are going to come back wholesale to the United States.

Just one thing I’d also add to that, and that’s that the change in manufacturing and how it happens, that has gone on in China and in Korea and in Japan and so forth, has been enormous. The jobs are fewer anyway, there’s a lot more robotics and so forth. And so, for every 100 auto workers that used to have jobs in Detroit, I think a wholesale move back to auto manufacturing in Detroit, for example, and I’m perhaps being a bit extreme, you know, would restore far, far, far, far fewer than 100 jobs regained.

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Alastair Tyler

What do you think about Trump’s taxation of Taiwan’s semiconductor industry? Will it affect the domestic industry in the US and accelerate inflation?

Peter Leahy

I think, well, a simple answer, yes. I can’t see any way around that, because creating a semiconductor industry just doesn’t happen in the short term. It’s an immense project of not just physical facilities, education, people skills, and so forth.

You can’t move it from A to B in the kind of timescale that a politician would require to make it a feasible policy.

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Alastair Tyler

When we look at capital markets, one of the most important things of any issuer is its credit rating. So, what do you think is the likely impact of all this noise and disruption in terms of the US sovereign credit rating?

Peter Leahy

Well, there’s downside to it, because, a credit rating has a lot to do with, well, really three things.

One, how big are you and the US ticks that box very, very neatly, because, it’s easier to have a strong credit rating if your economy is huge.

Singapore has a triple A credit rating, but a much, much, much smaller economy, which means that their ratios and so forth have to be impeccable. So, the size.

There’s also a need to refinance. The US, as I said earlier in the presentation, needs to keep refinancing. And you need people to believe that participation in the treasury market will be a successful or useful or remunerative investment.

And part of that, the third thing now comes from, you know, keeping a friendly relationship with other countries who are your interlocutors in this. And I think it’s quite telling that, you know, we’ve had a certain amount of different countries, perhaps notably China and the USA shouting from the rooftops at each other. But pretty quickly thereafter, you notice that they’re actually having meetings, and it’s a whole lot more friendly than one can be initially tempted to believe.

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