When markets realise Trump is serious about tariffs and that the US is now an isolationist state seeking to cut itself off from the rest of the world, they’re going to react, and we’ll get a crash. This is the audio version:This is the transcript:Is Trump going to crash world financial markets? There very clearly is a risk that he’s going to, if he carries on in the way that he is, and I want to talk about that because although I do think world financial markets are seriously overvalued, a downward revaluation of the type Trump is threatening would be chaotic and bad news for almost everyone. So, we need to talk about what is going on right now as a consequence of what Trump is doing now in middle February.Let’s be clear. Trump is increasing business risk around the world.He has said that tariffs are his favourite word, and everyone at first thought, I think, that he was talking about as a short-term weapon; part of his negotiations; the way in which he might enforce change in relationships between the USA and the EU, or Canada, or whoever else he might be picking upon. But now it seems that tariffs are not just going to be used for that role. Tariffs, it seems, are here to stay because despite everything that Elon Musk is doing to cut US government spending – or at least is supposedly doing to achieve that goal – Trump wants to deliver tax cuts for the wealthy that are bigger than anything that Musk is likely to come up with. In that case, he needs new tax revenues, and tariffs seem to be his answer to every question right now.So, the latest move is that we have a 25 per cent tariff on all imported steel and aluminium. That appears to be without exception. In other words, it applies to the UK, it applies to the EU, and all the exemptions that were negotiated during Trump’s first term of office, when he also put tariffs on steel and aluminium, have gone. They are now history, the tariff is here, it’s really going to bite, and this is going to have a significant impact on business in the USA, where the price of steel and aluminium are going to go up, meaning that all construction projects are going to be significantly more expensive, and cars are going to be significantly more expensive, amongst many other consumer products which are dependent upon both those metals. There’s also going to be a massive disruption in world trade as a consequence because these are core construction materials used in so many products, both fundamental infrastructure projects and consumer products around the world.So, what Trump is doing is fundamentally increasing business risk. And when you increase business risk by creating uncertainty, which is what he is doing, the rate of return that investors supposedly require from the markets in which they invest is higher. There’s a simple trade-off. As risk goes up, the rate of return goes up to cover for the possibility that the rate of return will not be delivered.Now, the relationship is not precise, and things are fudgy
