Macro Mondays with Andreas Steno Larsen

Episode: Why Reciprocal Tariffs Are a GOOD Thing
Date: February 17, 2025
Host: Mikkel Rosenwald
Guest: Andreas Steno Larsen

Episode Overview

This episode of Macro Mondays, hosted by Mikkel Rosenwald with Andreas Steno Larsen, explores the controversial topic of reciprocal tariffs, particularly in the context of US trade policy under Trump. The discussion dives into how reciprocal tariffs could potentially initiate a global “race to the bottom” on tariffs, impact international negotiations (especially with the EU and China), and what this means for markets, commodities, bond yields, and key macro trade ideas. The hosts also field listener questions on gold, energy, and central bank policy, all delivered with the podcast’s signature blend of entertainment and practical macro insight.

Key Discussion Points & Insights

1. Introduction and Lighthearted Banter (00:09–03:45)

• The episode opens with humorous commentary on notable haircuts among Trump administration officials—serving as a warm, personal touch before the macro deep dive.

2. The Case for Reciprocal Tariffs (04:08–09:16)

• Andreas explains why reciprocal tariffs can be positive:
  • Trump’s recent statements propose the US will not raise tariffs if other countries lower theirs, with the aim of equalizing tariff levels globally.
  • The US faces higher tariffs on exports than it imposes on imports, and reciprocal tariffs seek a “level playing field.”
  • “If you're Modi and you're running the business of India...you're currently stuck with tariffs that are...five to six times as high as the equivalent tariffs in the US...I actually think that there's an end game here that is pretty positive.” — Andreas (05:15)
  • There is potential for noise and hostile negotiations, but the ultimate outcome could be lower tariffs worldwide.

3. Global Tariff and VAT Overview: Winners and Losers (06:52–09:16)

• Country breakdowns:
  • China: Already close to US tariff/VAT levels post recent tariffs; unlikely to face further US action.
  • India: Faces extremely high tariffs—likely to be targeted for reciprocal increases unless adjustments are made.
  • EU/UK: VAT rates in Europe are much higher (20–25% vs. ~7% US sales tax). This could result in hefty retaliatory tariffs (~15%) unless addressed.
  • These disparities open the door for “deal-making”:
    • “That would be equal to a tariff of, say, 15% ish on Europe overall. That's pretty big.” — Andreas (08:32)
• The European Union may trade tariff reductions for concessions on Ukraine and tech regulation.

4. The US-EU-Ukraine Nexus: Tariffs, Defense, and Tech (09:16–12:32)

• Suggestion that Ukraine/defense commitments, tariffs, and tech sector regulation (esp. AI/data policy) could be wrapped into a single US-EU negotiation package.
• “The Europeans are not invited to the [Ukraine peace] table, but still have a very important role...EU and UK soldiers guarding that front line in exchange for Ukraine not joining NATO...” — Mikkel (10:20)
• US tech companies may bargain for VAT breaks or data/AI regulatory exemptions as part of a grand deal.

5. Tariffs Premiums and Market Implications (12:32–14:28)

• Market pricing is already reflecting fears of tariffs (“tariff premium”):
  • Bond yields are higher than where oil-inflation correlations would suggest; room for yields to fall if negotiations result in few new tariffs.
  • “If I'm right...these reciprocal tariffs ending up being a nothing burger...the market is basically caught wrong footed ultimately because there's clearly a tariff premium in bond yields.” — Andreas (12:32)
  • The hosts compare the current environment to 2017, where Trump’s initial action led to temporary market repricing but ultimately normalized.

6. US Fiscal Deficit and “Doge Project” Impact (15:02–17:34)

• Positive shifts in US fiscal deficit:
  • “Since the inauguration, we've actually seen a change of trend in the fiscal deficit...My best guess is that they've managed to remove 50 billion ish from the budget deficit already in three weeks.” — Andreas (15:21)
  • Doge project (federal cost-cutting) visibly shrinking the deficit—a chart Trump would “love.”
  • Scott Besant (Treasury) calms markets by signaling no increase in long-end issuance and aim to lower bond yields.

7. Commodities Focus: Soft Commodities and US Exports (18:31–20:34)

• Soft commodities (sugar, corn, wheat, soybeans):
  • Rising prices signal dollar weakness and renewed demand.
  • “If they start exporting more and the dollar softens alongside it, it's a big bull flag for...sugar, soybeans, et cetera in the US.” — Andreas (19:16)
  • Negotiation over farm product tariffs is anticipated to be a central “battlefield” in US trade talks.

8. Gold: Flows, Sentiment, and “Last Window” (20:34–23:51)

• Surge in physical gold inventories in the US (COMEX data) attributed to wealthy clients relocating gold ahead of tariff risks.
• “Gold had a bad Friday, but we're starting to rebound today again. And I think the market is sort of honed in on the 3K strike...$3,000 for gold. I think we'll get there within a week or two.” — Andreas (21:25)
• Cautions that once tariff uncertainty declines, gold’s “storytelling” will fade; suggests miners as a catch-up play.

9. UK Economic and Political Vulnerability (24:07–26:56)

• The UK stands out for its lack of economic momentum and intense political crisis post-Starmer.
• Reliance on imports renders the UK highly vulnerable to tariff shocks and energy disruptions.
• “The UK wouldn't survive a week without imports. It's an absolute catastrophe.” — Andreas (25:24)

Notable Quotes & Memorable Moments

• On reciprocal tariffs:
  • “I actually think that there's an end game here that is pretty positive...the end game is good.” — Andreas (05:15)
• On possible US/EU/Ukraine package:
  • “You have tariffs, you have Ukraine, [and] Trump is very clearly pushing his Ukraine plan...I think it's very, very realistic that he gets that done.” — Mikkel (09:51)
• On the “Tariff Premium”:
  • “There's clearly a tariff premium in bond yields...So I think there's a scope for bond yields to come lower into this April truce in Ukraine and with a kind of standstill on tariffs.” — Andreas (12:32)
• On fiscal policy:
  • “They've managed to remove 50 billion-ish from the budget deficit already in three weeks.” — Andreas (15:21)
  • “Scott Besant...he's also calming markets down with his rhetoric...” — Andreas (16:20)
• On gold:
  • “There is a very, very strong storytelling around gold right now due to tariffs. So utilize this last window of opportunity...” — Andreas (22:18)
• On the UK:
  • “It's actually the only major economy on earth not having momentum right now...We're into some sort of permanent political crisis in the UK.” — Andreas (24:07)

Listener Questions (26:56–33:23)

Gold Revaluation & Gold Standard (27:13):

• Concerns swirl about revaluing gold or reintroducing the gold standard. Andreas calls it “an outside chance,” not a base case.

Renewable Energy (Offshore Wind) (28:39):

• Offshore wind energy is struggling due to high rates, economic challenges, and waning political support in both the US and Europe. Potential value play only if bond yields drop significantly.

US Interest Rate Cuts & Liquidity (31:06–33:23):

• Private credit creation is replacing central bank-driven liquidity.
• “We'll see liquidity additions, but from private banks, not from the public sector...it will not increase in a gung ho style like in 2021.” — Andreas (32:01)
• Forecast: 1 Fed rate cut in H1 2025, with 1–2 more possible in H2, more than currently priced in the curve.

Actionable Trade Ideas and Themes

• Reciprocal tariffs may push towards lower tariffs globally, positively impacting markets if implemented with minimal disruption.
• Potential bullish trades:
  • US bond yields falling as the tariff premium is priced out.
  • Soft commodities (sugar, corn, wheat, soybeans) benefiting from a weaker dollar and improved US export conditions.
  • Gold and especially gold miners (catch-up trade), but only in the remaining window before negotiations resolve.
• Be wary of UK assets given high political and economic uncertainty.
• Monitor liquidity via private credit creation instead of public QE; risk appetite may be more selective in 2025.
• Nuclear and solar favored over offshore wind in energy markets for the foreseeable future.

Important Timestamps

| Topic | Timestamp | |-------------------------------------|-------------------| | Haircut Banter / Start | 00:09–03:45 | | Main Tariff Discussion Begins | 04:08 | | Country Breakdown: Tariffs/VAT | 06:52–09:16 | | US/EU/Ukraine/Tech Negotiations | 09:16–12:32 | | Tariff Premium in Markets | 12:32–14:28 | | Fiscal Deficit/Doge Project | 15:02–17:34 | | Commodities/Export Focus | 18:31–20:34 | | Gold Trends and Miners | 20:34–23:51 | | UK Outlook | 24:07–26:56 | | Listener Q&A | 26:56–33:23 |

Closing Thoughts (34:22)

Andreas’s bottom line:
“I think these reciprocal tariffs will ultimately end up in a race to the bottom on tariffs, so no reason to be scared.” (34:22)

Trade ideas and opinions, as always:
"Sometimes maybe good, sometimes maybe shit." (33:39)

Summary prepared for listeners who want the substance, color, and actionable points from Macro Mondays without missing the original nuance and spirit.