Good Morning Ladies and Gentlemen
”Every champion was once a contender who refused to give up.”
Rocky Balboa
People often remain unaware of perspectives outside their bubble, a realisation that is not particularly new. Nevertheless, instead of responding with indignation to the Trump administration’s tariffs, I believe that global political leaders and the media should adopt a more nuanced approach to the current U.S. administration. They should prioritise alternative markets and, most importantly, focus on best-in-class products. While this transition may require time and could involve some painful adjustments in the short term, it ultimately has the potential to foster a more efficient, productive, and competitive economic landscape in many countries outside the U.S., thus leading to more resilience in the long run.
Shift in Mindset
Such a shift in mindset may enable us to refrain from primarily preaching morals and ethics in international trade, a practice Western politicians often feel entitled to. It also encourages us to redirect our attention towards trade and recognise that differing perspectives, regardless of their underlying reasons, can be valid in other countries.
My Take
The Dow Jones Transportation Average is a cyclical indicator of the US economy and has recently fallen below its four-year GDP trend. This marks the first occurrence of such a decline since the crash prompted by the coronavirus in 2020. According to the GDPNow forecast from the Atlanta Fed for the first quarter of 2025, real growth is projected at -2.8%. Meanwhile, US consumer sentiment is deteriorating, with rising consumer inflation expectations (as indicated by the University of Michigan and the Conference Board’s consumer confidence indices). It remains to be seen how the tariffs may contribute to inflation while simultaneously hindering economic growth. As indicated in one of my “Stefan’s Weekly” from February, the risk of entering a stagflationary phase is increasing. After all this, I would not be surprised to see the Federal Reserve still lower the key interest rate this quarter.
Tax on Imports
Ladies and Gentlemen, importers, particularly American importers (companies, farmers, restaurants, hotels, etc.), bear the cost of those tariffs, which are nothing but taxes levied on imported goods. Therefore, while the Trump administration positions itself as a proponent of low taxes, tariffs directly increase the tax burden on goods that the average consumer purchases. Foreign export companies also face indirect costs due to these tariffs. The increased prices of their products in the U.S. market make them less competitive. To mitigate this disadvantage and maintain competitiveness, many foreign exporters may lower their prices, resulting in reduced profit margins. We must not fool ourselves; ultimately, the American consumers pay the price. Neither the foreign exporter nor the domestic importer can fully absorb the impact of a 20, 30, or whatever percent tariff by lowering their profit margins. Consequently, the burden of the tariff is passed on to consumers.
Rocky Balboa and the Swiss Government
The Swiss government has declared that it will not implement any immediate countermeasures in response to the tariffs imposed by the United States. This decision is judicious, considering the broader implications for international trade relations.
Last but not least, I think the quote presented today resonates strongly with the theme of this week’s “Stefan’s Weekly.”
Ladies and Gentlemen
Feel free to send your messages to smk@incrementum.li.
Many thanks, indeed!
I wish you an excellent start to the day and weekend!
Yours truly,
Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets
Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li
