“Unreasonableness is not a privilege of populists”

The currency is trust
Writing about the current tariff dispute between the USA and the rest of the world in a monthly publication like this is a futile undertaking. Events are coming thick and fast – partly due to the erratic and disruptive nature of the current American president. There are new announcements daily and retractions or changes and corrections. So what is talked about here today may no longer apply tomorrow. The broad outlines should therefore be concentrated on, in an attempt to provide an insight about what is happening. Some will be obvious and others will hopefully be inspiring and developed further. The day-to-day details, however, are reserved for other media and communication channels.

It can also not be assumed that the temporary, 90-day pause of the “punitive tariffs” by the US President has now solved the problems. And this is in two respects. Exporting countries and exporters do not know what to do and how to deal with orders and deliveries that are in transit, are planned or are new. And importers who urgently need goods for production are not in a better position. After all, new stipulations could be made tomorrow that are disadvantageous and replace the status quo of the previous day.

Above all, the lack of planning predictability and reliability has dramatically and permanently damaged the confidence of markets, investors and companies in the US. This cannot simply be restored overnight. Wall Street and other financial markets reacted to the announcement of the tariffs on Liberation Day, and the retaliatory measures taken by China in particular, with a massive slump on the stock markets. A trade war can now truly be spoken about. The level of a tariff dispute has long since been exceeded, not only rhetorically, but also in terms of the quantitative extent of the tariffs (more than 100% in each case, which actually cancels any margin).

Uncertainty also shakes up commodities
The commodity markets, such as oil and the industrial metals, were also not exempt from the immediate shockwave. After a first shake-up, prices of stocks and commodities were able to recover somewhat, but nowhere near back to their previous levels. With such a universal crisis in global trade, the current nickel prices on the London Metal Exchange (LME) can almost only be mentioned as a side note. The price for the nickel three months future on the LME dropped from over USD 16,000.00/mt to a low of just under USD 13,900.00/mt but is now back trading at USD 15,000.00/mt.

It would seem that the fear has materialised that the US Administration has damaged its own country the most with this possibly ill-fated move. When seeing how quickly the US Dollar lost value against the Euro and other currencies – just a few weeks ago it was almost at parity to now be just more than 1.14 USD/EUR – the US Treasury Secretary must be feeling the pressure. In this context, it should also be pointed out that in the past the US dollar was always the currency of crisis. In such situations the dollar always gained in strength, just as the money was also invested in US government bonds as a safe haven. This special status no longer exists.

At the same time, interest rates and yields on 10- and 30-year German government bonds are increasing massively, which shows that the capital market is no longer prepared to lend money to the US at the same low interest rates of the past. With the existing national debt of 120% of GDP (Germany, in contrast, is “only” at around 60%), this is no longer some small matter as far as the future interest burden is concerned.

Creditors want to be treated well
Meanwhile, Japan and China are by far the biggest creditors of the United States of America. Would any company seriously say about its lending bank that “they would kiss your a….. to negotiate”? This is not only the lowest level of behaviour, but also not very clever. At the same time a recession is threatening. In other countries there would probably be talk of a national crisis in such a situation, like in Great Britain when the British Prime Minister, Liz Truss, had to resign her position after just six weeks, having caused an enormous turbulence on the British capital market because of an ill-fated tax cut programme.

It should now not be called “Make America Great Again”, but “Please, make America as reliable and trustful as a partner again as it was for many decades”. But this is not a very easy thing to repair, for the currency for prospering companies is not tariffs or the US dollar, but trust. And this has been permanently damaged. China and other countries will look for alternative trading partners. The USA will become increasingly marginalised.

Now, unreasonableness in politics is something quite normal and not a privilege of populists, as is explained in a very good article by the chief editor, Eric Gujer of the Neue Zürcher Zeitung (NZZ) in a varied way and with many examples from recent and older history. It is highly recommended reading. Here is the link (in German): https://www.nzz.ch/meinung/trump-und-die-zoelle-unvernunft-ist-in-der-politik-normal-ld.1879674

“Stupidity is conducive to political unreasonableness, and intelligence is no protection” is an example of the precise sentences written by the author. And we should also take a good look at ourselves since voters are not necessarily better than politicians, as, for example, the Brexit referendum showed. Facts are subject to opinions and facts will be interpreted in ways which reflect the already formed world views.

The next segment will be about situation as a whole, and even if this wake-up call may not be completely correct, it should, however, certainly be thought provoking. The author Ray Delio has published some interesting thoughts, with the title “Don’t make the mistake of thinking that what’s now happening is mostly about tariffs”, also with the aim of promoting his book.

The real risks of global economy and tariffs – a look behind the scenes
Currently, there is hardly any topic in the global economy that dominates the headlines as much as tariffs and the geopolitical tensions associated with them. However, amidst the ongoing discussions and constantly changing situation, as explained above, it is difficult to write an article when the subject matter of tariffs and trade barriers may be out of date by the very next day. The situation is simply too volatile to make long-term statements that would still be valid tomorrow. Especially with regard to the US trariff policy, developments are happening at a rapid pace and are causing uncertainty. But despite the ongoing coverage of tariffs and trade barriers, one prominent name in the financial world is warning of an even deeper danger: Ray Dalio.

Who is Ray Dalio?
Ray Dalio is a very well-known personality in the financial world. As the founder of Bridgewater Associates, one of the biggest hedge funds in the world, he has built up his reputation over decades and is one of the most successful investors and economic experts. His insight into global financial markets and his theories on economies and financial cycles have made him into one of the most sought after consultants for political decision makers and institutions.

Dalio’s warning: The focus on tariffs is too short-sighted
In a recent article on the “X” platform, Dalio emphasises that investors are currently making a dangerous mistake by focusing too much on the current customs debates and so they are not seeing the underlying, fundamental risks. These risks do not only concern the trade war between the USA and China, but also to the long-term stability of the global economic order.

Dalio describes the present tensions as an expression of a basic change in the global order, which is increasingly suffering under the pressure of asymmetrical economic structures. The USA, according to Dalio, is “addicted to debt”, since it finances its excessive spending by taking up more and more credit. At the same time, countries such as China are “addicted” to selling products to countries which are already highly in debt, in order to support their economies. This unequal structure cannot be sustainable forever.

The change in the global economic order
The hedge fund manager warns that these disparities, especially between trade and capital, are not only a source of tensions between the big players of global economy, but also the whole monetary order could be endangered. The USA and China find themselves in a race, which is characterised by a deep mistrust. The United States fear that they will be cut off from important products, while China is worried that it will be stuck with its credit claims against the USA (see also above).

Dalio goes even further and warns about social tensions which are increasing worldwide. Deficits in education, inequality in life chances, diverging incomes and wealth levels and also a growing difference in values could all lead in the long-term to a breakdown of democratic structures. The rise of autocratic leaders, according to Dalio, could present an increasing challenge in the coming years.

The geopolitical shift
Another central theme of Dalio’s warnings is the change in international order. The former multinational and cooperative world order, which was stabilised under the leadership of the USA, is being shaken up. The “America First” approach has already been described by Hildegard Müller, President of the German Association of the motor industry, as an “America Alone” approach, coming more and more under the domination of US politics and changing the balance of global economic power. In this new geopolitical scenario, the trust between the players has never been so low, which considerably increases the risk for international conflicts and economic disruption.

Conclusion: One-off risks and far-reaching changes
Dalio makes it clear that the current trade conflicts and tariffs are only one small part of a much greater problem. The basic geopolitical and economic tensions, which will characterise the global economy in the coming years, are often overlooked. Whoever ignores these underlying risks could then run blindly headfirst into severe disruptions, permanently influencing the global economy. The investors who only look at short-term tariffs and trade barriers could overlook many crucial risks which have arisen through a shift in the global order.

President Trump’s smartphone dilemma
We would like to report on one particularly grotesque detail so far of the tariff announcements from the USA. President Donald Trump wants to rebalance trade, or rather the balance of trade, with aggressive tariffs against China. This is intended to boost US industry, but China’s deep assimilation in US supply chains poses a challenge. Apple’s iPhone, which can be found in every corner of American society, was, according to Bloomberg the largest single Chinese export to the USA in 2024, worth US-dollar 41 billion. In addition, China supplies 70% of all smartphone imports.

When considering how important the smartphone is in modern society, it is improbable that the American consumer would celebrate a smartphone price increase which equals the 145% tariff imposed on China. President Trump and his team have possibly recognised the problematic of a blanket universal tariff as they have now taken the smartphone and other electrical goods out of China’s tariffs. Recent reports, however, indicate that the exemptions may only be short-term.

The cost to change mobile telephone production to alternatives made in the USA highlight the problem. Bloomberg reports that the iPhone would cost 90% more if it would be made in the USA, which cannot be too far from the truth. The only smartphone produced in the USA illustrates this reality, as the Purism Liberty Phone costs, according to the Purism website, 2,000 US-dollars, while its equivalent made in China only costs 80 dollars.

Clean Industrial Deal: Controversy between Eurofer and EuRIC
On the 26th February 2025, the European Commission presented its “Clean Industrial Deal”, which is a concept to decarbonise energy intensive industries, such as steel and metals. But both the European Steel Association Eurofer and the European Recycling Industries’ Confederation EuRIC have both expressed criticism. While Eurofer complains that solutions to the challenges facing the steel industry are insufficient, EuRIC sees the link missing between decarbonisation and the circular economy and is a proponent of free trade.

Euofer’s view: Insufficient solutions for the steel industry
Although Eurofer recognises the right problems, it does not see any adequate solutions for the European steel industry. Four central aspects have been classed as being insufficiently dealt with:

 1. Global overcapacity: The global surplus of steel is now 550 million tons per year and by next year is supposed to increase by a further 150 million tons. In addition, the US tariffs are exacerbating the situation, as trade flows are being diverted. Eurofer, therefore, demands effective protective measures and an adjustment of trade rules.

2. CBAM reform: The changes in the Carbon Border Adjustment Mechanism (CBAM) have been criticised as being insufficient. Holes such as the circumvention of carbon costs through exports to third countries have not been addressed. Eurofer is calling for an immediate revision of the CBAM regulations.

3. Energy prices: High energy prices remain a key problem for the European steel industry. While the EU solutions are based on long-term measures such as electricity purchase contracts, Eurofer does not see any relief in the short-term. A structural reform of the EU electricity market is urgently required.

4. Securing raw materials: Eurofer is critical that the EU exports large quantities of steel scrap instead of using it to decarbonise it own industry. The Association therefore demands that steel scrap should be classed as a strategic commodity and targeted steps should be taken to keep it within the EU.

EuRIC’s position: A lack of connection between decarbonisation and the circular economy
The recycling branch shares some of Eurofer’s concerns, but has different priorities in some cases:

• A lack of integration of the circular economy: EuRIC criticises that the Clean Industrial Deal does not deal enough with the link between decarbonisation and recycling. The role played by recyclers in reducing carbon emissions and securing raw materials is not adequately recognised.
• Promotion of the recycling market: EuRIC demands incentives to use recycling materials in order to increase the stagnating demand for recycled steel.
• Energy prices and fair competition: EuRIC also sees high energy costs as a problem, but not only for the steel industry, but also for the whole recycling branch. In addition EuRIC calls for fair trading conditions for recycling materials within the EU internal market.