The Real Cost of Trump’s Trade Policy Is Yet to Come

Donald Trump began his presidency with the bold promise to put an end to what he perceived as years of exploitation of the United States by the rest of the world. According to Trump, this exploitation led to job losses and a growing trade deficit. While there is a grain of truth to this narrative, the reality requires a more nuanced perspective.

Is the Trade Deficit a Problem?

Trump clearly views the U.S. trade deficit as a threat to the American economy. A trade deficit arises when a country imports more than it exports. In Trump’s view, this reflects a failure of other nations to purchase sufficient American goods and services.

The U.S. trade deficit over time.

In reality, the trade deficit is a consequence of globalization. Increased imports have resulted in deflation—more affordable goods from countries with lower wages and production costs. In this light, American consumers have enjoyed rising purchasing power over the years.

Fewer Jobs in the U.S.

The downside to this increased purchasing power is a significant loss of employment, particularly in manufacturing sectors such as footwear, furniture, and various consumer goods. Producing these items is simply cheaper in low-wage countries.

This development was not driven by ill intent, but rather by companies seeking cost savings and profit maximization. It’s a natural outcome of globalization and the pursuit of maximum shareholder value—ironically, a concept that originated in the U.S.

It’s also noteworthy that enthusiasm for factory jobs among the American public is relatively low. While 80% of respondents believe a manufacturing revival would be beneficial, 73% admit they would not be willing to return to factory work themselves.

Moreover, reshoring manufacturing at scale comes with drawbacks. Higher wages in the U.S. would drive up production costs, resulting in more expensive goods—ultimately eroding consumer purchasing power.

Can Trump Maintain His Course?

Given these complexities, it seems unlikely that Trump can sustain his hardline approach toward China—and, to a lesser extent, other trade partners—for long. The current high tariffs on Chinese imports function almost like a trade embargo.

While large publicly traded companies may occasionally receive exemptions, America’s small and medium-sized enterprises are facing significant challenges. Anecdotal evidence already points to negative consequences, and it is likely only a matter of time before hard economic data confirms this trend.

The question is not if Trump will scale back his confrontational trade strategy, but when he will recognize that the economic bill is inevitably coming due—in a matter of months.

What Does This Mean for the Markets?

For risk assets like U.S. equities and Bitcoin, the impact is difficult to predict. Both the S&P 500 and Nasdaq have risen sharply in recent months, buoyed by optimism that economic damage may be limited.

Bitcoin has held up reasonably well over the same period. However, to suggest that it has become a true safe haven still feels premature. If it were, one would expect a stronger correlation with gold—a trend that has not yet materialized.
 

Caution Remains Warranted

The biggest risk is that if economic data turns out worse than investors anticipate, equity markets could see a sharp correction. This would also increase the price risk for Bitcoin, as correlations typically rise during periods of market stress—meaning Bitcoin tends to move in the same direction as other risk assets.

The appropriate takeaway may be that it doesn’t hurt to keep some powder dry, just in case Bitcoin retreats as a consequence of Trump’s trade war.

The views expressed in this article are those of the author and do not constitute financial or investment advice.