I have a Cunning Plan!
…..which was often a phrase emanating from the hapless crew of Blackadder! It may sound bizarre, but could Donald Trump and the Republican Administration actually have a ‘cunning tariff plan’?
The first we learned about the tariffs was on 3rd April, when Donald Trump stood in the Rose Garden and held up a board proudly showing off his tariffs to the world. What was shown were rates far in excess of what anyone had anticipated. The actual tariff rates themselves appear to have been arrived at using an extremely rudimentary calculation which in many cases woefully misinterprets reality.
For example, Mobius Investment Trust have analysed the tariff rate on Vietnam and concluded:
‘In reality, the data tell a very different story. According to the 2025 National Trade Estimate (NTE) released by the Office of the US Trade Representative on March 31 2025, Vietnam’s average Most-Favored-Nation (MFN) applied tariff rate in 2023 was 9.4%. The report even says ‘‘the majority of U.S. exports to Vietnam face tariffs of 15 percent or less’’, with certain consumer-oriented food and agricultural products facing higher rates.’
Many small African countries were also hit with punitive tariff rates – which have no hope of ever balancing trade with the US simply as their economies are so small. It begs the question therefore, is the US Administration aware of the very crude calculation of the tariff levels that in many cases make no sense whatsoever?
You mean there is some good news?
The good news is that despite all the significant confusion, there could be a plan – and that this plan may come our way sooner than we think.
To understand that plan, it is worth briefly examining what Donald Trump believes in:
- Close to Trump’s heart is the significant drop in the US manufacturing sector that has been witnessed over the past few decades. Barry Norris, of Argonaut Capital, estimated that in 1950, the US accounted for 60% of global manufacturing, employing 16 million people – compared to now being just 16% of global manufacturing and employing just 4 million people. Trump views this as a national emergency – that the US relies on too many other countries, including those which it may categorise as foes, for goods and products that are essential to the national security and economic functioning of America. Trump also wants to create manufacturing jobs and opportunities which he believes have been stolen from the US.
- Trump also views the hollowing out of US manufacturing as adding to much greater income and wealth inequality in the US which has contributed to social problems, such as the fentanyl crisis, which has claimed more US lives than COVID.
- Trump also views that the US is shouldering the burden of NATO security which is adding to its debt burden much more significantly compared to other countries. These excessive defence costs means that overall debt servicing costs (what the US government pays in interest on its debt) in the US now exceeds the cost of defence – which has very rarely happened before.
- Trump is also concerned about global imbalances and the foreign ownership of assets in the US. Far more foreign residents own US assets (stocks, shares, property, land) in the US than US residents own throughout the rest of the world. In Trump’s view, the US does not need capital from overseas – he views that the dollar is simply being pushed higher as overseas investors buy ‘quality’ US assets, such as stocks and US government bonds. Trump wants a weaker US dollar so the US can sell more manufactured goods to the world.
- Trump also believes in tax cuts and giving more power to the private economy rather than the government. He needs the revenue from tariffs to fund his planned tax cuts.
What is the Cunning Plan?
Of course, what comes next cannot be known for sure. But tariffs do not solve all Trump’s wishes – in fact, they are by no means the only tools that can be used in a much bigger plan.
The most influential actors in Trump’s administration, are Scott Bessent, Treasury Secretary and Stephen Miran, Trump’s Chief Economic Adviser and we will probably be hearing a lot more from them in the coming months.
While the world has been fretting about tariffs and the economic consequences, behind the scenes, the groundwork has been prepared for two fronts:
- A Global Debt Swap – the ‘Mar-a-Lago Accord’
The largest government outlay in the US is now interest on US government debt. The groundwork is being laid for a ‘Mar-a-Lago’ Accord’ where the US government will ‘ask’ governments to do a ‘debt swap’ from interest-paying US government bonds to perpetual non-interest paying US government debt. This is like swapping your 2-Year Cash ISA fixed at 4% to a cash ISA which you are locked into forever and are not paid any interest! Why would you do this? For the US, this is the price of using the US Dollar in your global trade and to be covered under the NATO defence umbrella. The ultimate goals are to significantly reduce the interest cost bill for the US and lower the value of the dollar.
According to Global Macro Strategist Vincent Deluard, of StoneX, the tariff levels on certain countries are by no means an accident. There are those who will probably need little persuasion to do this: the UK, Australia, New Zealand, Columbia and many smaller nations who cannot afford to build significant military forces – and these received a 10% tariff. Then there are those who may require a little persuasion – perhaps those who hold a lot more US debt (and who may be less keen for the debt swap) such as Japan and South Korea. The threat here is that the US just pulls their military bases out of these countries. The final group are those who will require far more persuasion – those who don’t want to be ‘in debt’ to the US economy nor sign up to an accord – chief of which is China, but also countries such as Vietnam, Indonesia, Malaysia and much of East Asia. The hope is that punitive tariffs will cause such major economic disruption, it will simply mean these countries have no other choice but to fall in line.
- Tools to reduce the US’ Trade Deficit
The US government does not want your investment money!! The allure of the US financial markets has been self-perpetuating – the deep, open and dominant capital markets with strong core economic and political values built in – and over the past 15 years, great returns! The US has fast turned into not the most attractive place to park your capital but the only place. However, this is now such a stretched concept that Trump believes these are actual policy choices being made by other countries to redirect savers money to the US. For example, Trump could argue that UK investors receive an incentive NOT to invest in UK domestic equity markets because of a 0.5% Stamp Duty tax – and no corresponding UK tax on investing in US shares. The incentive is therefore for UK investors to buy US shares.
The US is building an array of ‘disincentives’ to persuade foreign money to consider other destinations. This includes a ‘user fee’ on foreign holders of Treasury securities, foreign withholding taxes on US interest income and the creation of a US Sovereign Wealth Fund whose specific goal would be to address capital flow imbalances – and ones that could potentially own foreign financial assets, such as Tik Tok or even Greenland…I joke not!
Like it or not, these are not pie-in-the-sky ideas – these are core ideas, sketched out in papers such as “A User’s Guide to Restructuring the Global Trading System” by Stephen Miran (Trump’s Chief Economic Adviser) in November 2024.
Underneath it all the bigger target is China. As with the Soviet Union, which was squeezed close to collapse, the US is seeking to cut off China from the world economy by punishing tariffs and restricting access to Treasuries, which they hope will force transformative change in China’s business model. The world would then morph into one where US exports are competitive, the US would not be the main funder of NATO, debt costs are significantly lower and the American heartland would be reinvigorated with manufacturing resurgence. As Vincent Deluard noted, the tariffs are the start of this process to get everyone around the table.
Trump does not want to be remembered as the President that shredded the global economy, causing a deep recession and collapsing stock markets. He wants to be remembered as a President that got the dollar lower, lowered US debt costs, cut taxes and brought back manufacturing to US shores.
Essentially, he wants to get the deal done – even if he has to eventually make compromises.
Of course, whether things turn out this way is something only the future knows. For now, it is understandable that markets have reacted sharply. For Raymond James, Richmond clients, portfolios remain overweight cash and more defensive. However, markets won’t need to move much lower to find some attractive longer-term growth opportunities as it is quite likely, that by the end of this year, all this will be water under the bridge.
If you have any questions or are interested in becoming a client, please call 020 4502 4731 or email tom.moloney@raymondjames.com
Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.