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Trump, tariffs and Europe’s “shock therapy” – Michael Strobaek explores a changing economic landscape
key takeaways.
The global order is fragmenting into major blocs (US, Europe, Russia, China). This shift, accelerated by geopolitical tensions, challenges the efficiency of interdependence
The second Trump Presidency’s erratic policies and tariffs implementation are unsettling markets, forcing adaptation to rapid economic shifts
The US-China rivalry takes centre stage as the major geopolitical conflict, with the US recalibrating its strategy to counter China’s economic dominance and technological ambitions
President Trump’s administration views the EU as an economic rival, prompting Europe to rethink its reliance on the US for security and defence. This “shock therapy" could catalyse investments in energy, defence, and infrastructure.
We are living through a whirlwind of change. According to Michael Strobaek, Lombard Odier’s Global CIO, Private Bank: “The world order of 30 years is being reshuffled in just three to four weeks. The settled order of security and economics is being shredded and written anew almost daily.”
While geopolitical tensions were already a key feature of our current investment landscape, the second Presidency of Donald Trump has added a new level of uncertainty that “is unsettling businesses and investors,” Michael Strobaek says. “And the thing that investors, businesses and markets don’t like, is uncertainty.”
What happened to the ‘Trump’ the markets were expecting? What are the implications for China and Europe? And how should investors approach portfolio allocation as uncertainty deepens? Michael Strobaek explores the implications.
From interdependence to independence
According to the World Bank Group, over the last three decades, globalisation and increasingly interconnected trade flows have helped lift one billion people in developing nations out of the most extreme poverty.1 At the same time, consumers in developed nations have benefited from a plentiful supply of imported goods. This has come at a cost, however. As cheap imports have flooded in, many Western nations have seen a decline in their domestic manufacturing capabilities, leaving them reliant on overseas suppliers.
In this new fragmented world, interdependence is no longer a source of efficiency – it’s a vulnerability
Now, with established global alliances breaking down, Western economies are once more rethinking their supply chains – a process that began during the pandemic. “We are not just in a multipolar world, but a world that is being properly fragmented between major blocs and spheres of influence – the US, Europe, Russia, and China – with alliances shifting and global hegemony being challenged,” Michael Strobaek explains.
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“In this new fragmented world, interdependence is no longer a source of efficiency – it’s a vulnerability. Nations must secure their supply chains, energy, defence, and technology to be prepared for the long haul.”
Tariffs and Trump 2.0
The recent announcement by President Trump of a vast swathe of import tariffs – imposed on political allies and enemies alike – is driven, in part, by this desire to move from inter to independence. It is also a further catalyst for other nations and blocs to do the same.
“Trump 2.0 is not Trump 1.0,” Michael Strobaek says. “I think we’re all taken by surprise by the speed of change and the tone of the new administration. I believe the most problematic part of this new government is the erratic nature by which they introduce policies then pull back. It’s as if it’s trial and error.”
“Investors are used to dealing with risk, such as inflation and recession risks, but this is real uncertainty. Everyone came into the year saying Trump 2.0 is pro-growth, pro-business, pro-markets, pro-entrepreneurial spirit, deregulation, tax cuts, etc – but now Trump has even said, ‘I’m prepared to accept a recession as a consequence of our policies’.”
The world order of 30 years is being reshuffled in just three to four weeks. The settled order of security and economics is being shredded and written anew almost daily
The immediate impact of tariffs is simple, he explains. Initially, equity markets reflect uncertainty over how tariffs will impact trade and whether an escalating trade war will ensue. “Uncertainty is risk, and risk means lower prices,” he says.
However, he continues, “The impact on bonds and interest rates is much more complex. The Federal Reserve can’t lower interest rates further because tariffs are slightly inflationary. But on the other hand, the tariffs are likely to dampen economic growth down the line, which is when the Fed would normally want to reduce rates. So they are stuck.”
China and the US go head-to-head
Where do the tariffs and ongoing supply chain de-integration leave China, one of the major beneficiaries of decades of liberalising global trade?
“The US-China standoff is the real conflict out there. The Americans realise the big face-off they have to prepare for is with China, and they are recalibrating their strategy accordingly,” Michael Strobaek says.
Their real strategic agenda, which President Xi has repeated recently, is to dominate in the space of technology and artificial intelligence
“Over the last 30 years, China has risen up to greatness, and is prepared to challenge the US on economic dominance. China wants to see the world centred around Beijing, with everyone doing business, imports and exports, etc, with the Chinese. I don’t believe for a moment that China is a military threat to the US or Europe, but they want their country to be seen as great in economic terms.”
“Their real strategic agenda, which President Xi has repeated recently, is to dominate in the space of technology and artificial intelligence. It’s scaring the Americans, because China has enormous potential in this space. They are ramping up their technology investment when it comes to military expenditure, but in particular they see AI as a boost for their industrial sector and productivity. It will help with robotics, and even one day could obviate the demographic issues of an ageing society.”
Despite the threat from geopolitical tensions and Trump’s trade tariffs, Michael Strobaek believes the long-term impact on Europe could be positive, provided the bloc listens to its wake-up call.
“Europeans may have feared the return of Trump, because during his first stint in the White House he wasn’t friendly towards Europe. But now it’s become clear that Trump’s administration sees the EU as economic rivals.”
“For Europe this is a huge wake-up call. When it comes to security, they’re starting to realise they can’t rely on America as much as they have, either as a backstop in the Ukraine war or on defence more broadly. They also see that if they want to get out of the economic swamp of slow growth, they need to be more serious in terms of investments.”
“I think this is good. Europe has been held back by over-regulation, bureaucracy, lack of leadership. In contrast to the US, European economies have not been able to recover so strongly since the Covid pandemic.”
“Today, the security order for Europe is new. The investment outlook for Europe is new. And that can catalyse investments in Europe, meaning spending in energy, defence, infrastructure – things that will be positive for business. This is shock therapy, and it’s going to reshape the landscape of European investments.”
We shouldn’t see that spending as a cost, but as an investment in our long-term security and in the next generation
Investing in uncertain times
At Lombard Odier, we believe that at times like these, when the investment landscape can feel as if it’s changing at dizzying speed, it is essential for investors to focus not on the whirlwind of news, opinions and forecasts, but on the economic fundamentals – to take a step back and calmly evaluate the bigger picture.
While change brings risk, it also brings opportunity, and investors should position themselves for both, Michael Strobaek continues. “In a world where major nations are looking to achieve domestic security and supply chain independence, I think technology, defence and infrastructure investments will be a bright spot for investors. But we need to be aware that diversification is crucial – this is the number one thing an investor needs right now. You can’t place all your eggs in one basket. Investors should also stay flexible and vigilant; volatility is back, and that creates opportunities.”
“For European governments and investors I believe we should stand up to the challenge of Trump. In aggregate we are at least as rich, if not richer, than the Americans. We have enormous savings that we can spend on our future. We shouldn’t see that spending as a cost, but as an investment in our long-term security and in the next generation. I believe we shouldn’t be frightened about today’s changing economic and investment landscape, but we must get our act together.”
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