Playbook Summary:

• Headline risk is especially acute during periods of uncertainty.

• Some countries, like Germany, are more vulnerable to trade wars than others.

• Broad-based tariffs create more economic inefficiencies than specific tariffs on emerging industries.

• Trade uncertainty could delay capital spending, as was the case in the months preceding the election.

• The fluidity of exceptions makes it difficult to forecast inflation, creating volatility in fixed income markets.

 

The Man Who Moves Markets

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Apparently, President Trump is a man who can move markets, both to the upside and the downside. During his second term, the President has created a cloud of uncertainty surrounding trade policy, and the various press conferences and social media posts have been tools for volatility. On April 2, investors were quick to dial back risk, but then piled back into the market after the announcement of a 90-day pause on reciprocal tariffs for most countries. But the President is not the first one who’s had an outsized influence on markets. Those who’ve been around markets long enough would know that other individuals have incited market swings during periods of uncertainty. Announcements about the Troubled Asset Relief Program (TARP) in 2008 created greater short-term swings than recent tariff-related news. Other notable periods included 2022, when investors thought the economy was in recession.

 

Headline Risk Highest During Times of Uncertainty

• Source: LPL Research, Bloomberg 04/16/25
• Disclosures: Indexes are unmanaged and cannot be invested into directly. All performance referenced is historical and is no guarantee of future results.

 

Germany Is Especially Vulnerable

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Among the G-20, Germany is the most reliant on exports. Last year, exports were roughly 45% of the German economy, and the U.S. is one of its biggest customers. Key export categories include vehicles, machinery, pharmaceutical products, and electrical equipment.

 

Germany’s strong reliance on international trade with the U.S., particularly in industries like automotive, machinery, and chemicals, illustrates that neither country “wins” with a trade war. Rather, investors must estimate who is least hurt.

 

Germany Is Heavily Reliant on Exports

• Source: LPL Research, Census Bureau 04/16/25

 

Summary

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Headline risk becomes particularly significant during periods of uncertainty, affecting global economic dynamics. Some nations, such as Germany, are more exposed to these risks due to their trade-dependent economies. Broad-based tariffs tend to exacerbate economic inefficiencies, leading to a greater deadweight loss compared to more targeted tariffs on emerging industries. Additionally, trade uncertainty often delays capital investment, as evidenced in the months leading up to the election. The unpredictable nature of tariff exceptions further complicates inflation forecasting, which, in turn, creates volatility within fixed income markets.

 

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