Macro Mondays — "3 Good Tariff Trades for a Crazy Week!"

Host: Andreas Steno Larsen
Guest: Andreas Dano, with contributions from Miguel
Date: February 3, 2025

Episode Overview

This episode dives into a turbulent week in global macro, dominated by volatile U.S. trade policy headlines and market reactions to potential new tariffs on China, Mexico, and Canada. Andreas Steno Larsen and Andreas Dano dissect the shifting situation, explore likely scenarios, decode the market response, and discuss actionable trades for navigating tariff turbulence. The hosts also respond to audience questions about the wider effects of tariffs, the outlook for the U.S. dollar, implications for European investors, and more — all delivered with the show’s characteristic combination of candid banter and seasoned analysis.

Key Discussion Points & Insights

1. Tariff Turmoil: What Happened Over the Weekend?

• Flurry of U.S. Tariff Chatter:

  • Speculation over imminent U.S. tariffs on China, Mexico, and possibly Canada created significant noise in markets (03:07).
  • On Monday, President Trump postponed tariffs on Mexico after discussions with President-Elect Claudia Sheinbaum. Talks with Canadian PM Justin Trudeau still pending (03:57).
  • Markets reacted swiftly: Nasdaq down 3% on the open, sharp moves in FX, and heavy trading in Asia.

• Andreas Dano:

  • Noted the instability caused by “flip-flopping” on tariff announcements. He warned this lack of direction leaves the dollar vulnerable:

    "This lack of direction, basically going from one extreme to the other on tariffs overnight, leaves the dollar vulnerable to some sort of rest of the world attack on it." (05:00)

  • Recollection of summer 2017’s White House chaos and the subsequent dollar weakness.
  • Overseas investors are “increasingly tired” of U.S. turbulence, which can affect demand for dollar assets (06:45).

2. Trump’s Strategy: Bluff or Bluster?

• Motives and Impacts:

  • Host and guests discuss whether tariff threats are a genuine policy or negotiation tactic (08:33).
  • Practical challenges of enforcing complex tariffs, especially on globalized supply chains (08:48).
  • Dano’s assessment:

    "If you just add a one size fits all import tariff on everything, then it's pretty easy to maneuver... But it's very, very difficult to set this up without some sort of universal setup." (08:48)

• Negotiation Tools & Who Blinks First:

  • The hosts suggest that bilateral tariff threats are mostly a way to extract concessions from partners like Mexico and Canada, not a long-term plan (10:11).
  • If implemented, the “test run” market response discourages sustained use of tariffs:

    "If that's the reaction to expect whenever you implement new tariffs, that makes it a whole less realistic for the US to use." (10:29)

3. Market Reaction: Equities, Crypto, and the Dollar

• Turbulence for Risk Assets:

  • U.S. equities sold off on headline risk, but this may limit the administration’s willingness to pursue tariffs (10:29).
  • Crypto markets, especially “Trump Coin” and altcoins, saw harsh selloffs; Bitcoin held in better (11:31).

• Investor Sentiment:

  • Despite the “noise,” underlying economic momentum remains robust, especially manufacturing (15:34).
  • Investors are sending a message: don’t rock the boat when conditions are good (12:48).

4. Audience Q&A: Europe, Retaliation, and Capital Flows

• Possible Retaliatory Measures:

  • Concern from European investors about the risk of capital controls or taxes on U.S. investments in retaliation to U.S. tariffs (13:31).
  • Dano thinks capital tax isn’t an immediate threat, but remains a “bargaining chip” for foreign policymakers. The world holds significant U.S. assets (14:34).

• European Growth Perspective:

  • Europe must “find a way out of the low growth environment without U.S. help.” Hopes for structural reforms, deregulation (18:30).
  • European banks and certain equity indices (e.g. DAX) have recently outperformed.

5. Actionable Macro Trades for a Volatile Environment

a. Gold

• Hedge for both scenarios — whether tariffs go ahead or not, or if the dollar softens (20:24).

b. Short Dollar / Long Japanese Yen

• View bolstered by “peakish” bond yields and potential dollar vulnerability (20:24).

c. Rotation from Bitcoin to Gold

• Family offices querying a rotation given gold’s perceived resilience in trade conflict scenarios (20:24).

d. Cyclical Equities

• With manufacturing picking up (per ISM reports), Dano is positive on materials, banks, and other cyclicals (20:24).

"Everything you need to see in an accelerating economy, stuff like materials, banks, etc., cyclical equities, they do pretty well in this kind of setup... as long as the cycle is actually improving beneath the hood, we still have positive developments in M2." (20:24)

Tariffs and Inflation: Dissecting the Effects

Audience Q: Will the tariffs be inflationary?
Dano’s Answer (23:28):

• Immediate Impact: Tariffs cause a one-off jump in inflation (e.g., higher natural gas prices if imports from tariffed countries).
• Beyond the Shock: Over time, tariffs can become disinflationary due to:
  • Negative growth impact from trade disruption.
  • Re-routing of trade flows to avoid tariffs (e.g., German exports to Russia via adjacent countries).

"Tariffs were added on China back in 2017, 2018, but look at the statistics on export import from Brazil, Mexico, etc. A lot of these goods flows, they were just rerouted basically." (24:14)

Universal vs. Bilateral Tariffs

• Scott Bessant’s “Universal Tariff” Idea: Small, across-the-board tariffs are more effective; bilateral tariffs can be circumvented (26:45).

Notable Quotes & Memorable Moments

• On Unpredictable Policy:

  "No one knows what the fuck is going to happen once you implement these tariffs. Exactly." — Host (10:29)

• On European Pragmatism:

  "Europe will have to cut red tape, do all of the stuff that Trump is good at doing in the US. And I'm not particularly optimistic on the European economy's behalf." — Dano (18:54)

• On Trading Advice:

  "Maybe the best piece of advice right now is to try and avoid reading [the headlines], study the underlying cycle and put on some trades that can actually swallow a bit of turbulence around this tariff story." — Dano (22:37)

• On Keeping Perspective:

  "Breathe easy, take a step back... The end game is okay here. That's still my overwhelming base case." — Dano (15:19, echoed in concluding remarks)

Important Segment Timestamps

• Tariff news fallout and postponements: 03:07–07:06
• Discussion on Trump’s intentions and policy implementation challenges: 08:33–10:11
• Market reactions and implications for crypto and F/X: 10:29–12:48
• Audience Q&A—capital controls, European perspective: 13:31–18:54
• Actionable trades & economic momentum discussion: 20:23–22:37
• Inflationary/disinflationary effects of tariffs: 23:28–24:45
• Universal tariffs vs. bilateral circumvention: 26:45–27:09
• Closing summary and advice: 28:26–29:08

Final Takeaways

• Markets Hate Uncertainty: Rapid reversals and headline-driven trading make new tariffs less politically attractive.
• Robust Underlying Momentum: ISM data and broader indicators point to cyclical strength beneath the noise.
• Actionable Trade Ideas: Gold, short-dollar positions (especially vs yen), and reasoning for a partial rotation into cyclicals.
• Stay Calm, Stay Flexible: Ignore the wild headlines and focus on fundamentals and sound risk management.

Closing advice from Andreas Dano:

"Breathe easy and I sincerely mean it ... beneath the hood everything is fine and as soon as we have that noise away from the center of attention, we'll see some decent returns out there." (28:26)

For further macro insights and trade ideas, listeners are invited to follow the hosts via Steno Research and Real Vision.