Lessons from a two-day trade war

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

What can we learn from the trade war against Mexico that began on Saturday 1 February, and was put on hold the subsequent Monday?

Regardless of how Canada or Mexico responded, had Trump on February 3 not agreed with Claudia Sheinbaum and Justin Trudeau to postpone tariffs, the damage to American producers and consumers would have been incalculable: shortages, inflation, and free-falling market prices.

For this reason, one month from now the United States probably won’t carry out Trump’s threat to slap a 25% tariff on Canadian and Mexican imports. In other words, Trump’s threat lacks credibility. It’s a negotiation tactic to extract “concessions” that he himself has not defined, all while projecting himself as a hardball dealmaker.

What Trump seeks is to spread chaos and inspire fear. He wants to be seen as a tough and brilliant negotiator, claim victories—real or not—and stay in the spotlight at all costs. He has no actual plan; he improvises. And he refuses to take sound advice, instead surrounding himself with loyalists committed to executing his plans to spread chaos and inspire fear. 

What Should Traders Do? 

Take advantage of volatility. But my clients and readers are not traders. They’re investors.

What Should Investors Do? 

In saying that a 25% tariff was unlikely I was not saying we could rule it out. Like another pandemic or an invasion of Taiwan by China, it could happen. Investors need robust portfolios that can withstand tail risks.

Overall approach

Identify all future uses of your capital. Then, either on your own or with the help of an independent investment advisor (I can recommend one!), design a strategy for each use. 

Near-term strategy

Shield from volatility and currency risk as far as possible any capital you may need in the next two years.

Farther-out strategy

Invest what is left in one or more well-diversified and intelligent portfolios.

In doing so, remember: diversifying across stocks and bonds is not enough. During times of inflation, both can decline in tandem.

Your goal in designing these medium- and long-term portfolios is that, despite their volatility, they will be highly likely to recover within a reasonable timeframe from Trump fits, new pandemics, and surprise invasions and display solid growth on average over your defined investment horizon.

Genevieve Signoret teams up with TransEconomics to deliver serenity to high–net-worth families and individuals. To learn more, ask Genevieve for an appointment.