Getting into Donald Trump’s head is no easy task. And to the extent his economic intentions are decipherable and coherent, can Trump impose his economic will on other countries? As tariffs go into place, albeit with a partial pause, that remains to be seen.
While tariffs occupy the headlines now, they and the other aspects of his larger plan have a name — the Mar-a-Lago Accord — and are spelled out in a November 2024 paper written by Trump’s current chair of his economic advisors, Stephen Miran. They are concerned roughly with the value of the dollar, the U.S.’ debt load, onshoring more and better jobs, and reorganizing the U.S.’ place in the global order. Tariffs are one means to accomplishing Trump’s goals.
“Accord” is an optimistic name, however, because there’s no guarantee other countries will submit to this set of ideas the way an accord was reached about the value of the U.S. dollar at, e.g., the Plaza Accord of 1985.
That took place at the Plaza Hotel in New York, where representatives from the U.S., the U.K., France, Germany, and Japan broadly agreed to lower the value of a surging U.S. dollar.
US ‘realignment’ more than ‘accord’
As economist Jim Bianco told Advisor Perspectives, Mar-a-Lago “is no accord; what it’s meant to signify is a big realignment of the global order.” But the first part of it resembles the Plaza Accord in its effort to boost U.S. exports and lower the value of the dollar.
Bianco runs the Wisdom Tree Bianco Fixed Income Total Return ETF (WTBN).
Imposing tariffs to return some manufacturing to the U.S. is an attempt to address “working class people who’ve been on the losing end of globalization,” according to Bianco. The goal is to make moving labor offshore less attractive to businesses that, since the removal of tariffs, have gutted the middle of the country and the middle class.
“People in the administration think we’re in the middle of a crisis, and [we] cannot hold the status quo,” said Bianco, who mentioned a February Niall Ferguson article in the WSJ arguing that when a world power’s interest expense on its debt exceeds its defense expenditure, decline follows.
Jake Schurmeier, co-manager of the Harbor Multi-Asset Explorer ETF (MAPP) also said, “at its core, the plan seeks to address the disease that is the strong dollar. . . . [and] the hollowing out of domestic manufacturing we’ve seen for the last 40 years.”
The key, says Schurmeier, is to manipulate the dollar, but keep it as the world’s reserve currency.
Trump, of course, also wants to extend tax cuts. While he might not have Liz Truss, the U.K. prime minister who lasted little more than a month after the bond market rejected her tax-cut proposals, in mind, Bianco thinks Trump “should, to some extent.”
A policy pullback
Indeed, a spike in yield on the 10-year Treasury from 4% to 4.5% in three days may have spurred Trump to give his 90-day reprieve on some of the tariffs on April 9.
Whether or not he has Truss in mind, Trump’s focus has “shifted away from the S&P 500. His measure of success now is the 10-year yield — more jobs, lower inflation, bring down debt/GDP,” said Bianco.
William Campbell, co-manager of the DoubleLine Global Bond (DBLGX) fund, also thinks the “focus of using the stock market as a short-term barometer [is changing].” Instead, the administration is “seeking lower interest rates [in an effort to] get growth to turn up at the end of next year.”
The last part of the plan is to reduce the U.S.’ military role in the world, or, more precisely, force other countries to agree to appreciate their currencies and perhaps even accept a restructuring of U.S. debt in exchange for U.S. military protection previously provided at no charge.
Regarding that “stick,” Schurmeier wonders how effective it will be. “The dramatic changes we’ve seen in Germany and their willingness to spend on defense [shows] people are trying rapidly to reduce the power of that stick,” he said.
Gold, alts & worry about US equities
In terms of investments, Schurmeier recommends diversification, including some gold. “Gold has been a good hedge in recession, [and] for inflation, gold should do well there as well. You’ve seen central banks allocate to gold, and we think they will continue to do so,” he explained.
Schurmeier also likes nondollar currency exposure and trend-following strategies in the current environment, or, as he put it, “alternative risk premia without a clear market beta.”
Schurmeier also worries about U.S. stocks: “The risk for the US equity market is that the entire world is overweight US equities. The US is 25% of global GDP, but 65% of the global equity market.”
On the debt restructuring, Schurmeir thinks the probability is low and the costs very high. An attempt at selective restructuring “would spill over into the broader market.”
DoubleLine: European equities & conservative bonds
DoubleLine’s Campbell thinks the willingness of Germany and other European countries to ramp up defense spending means European stocks could rally.
DoubleLine has been touting European stocks for more than a year, and Campbell said, “Maybe now Europe has a catalyst for multiple expansion and earnings growth, not just an argument that it’s cheap.”
Ultimately, the Mar-a-Lago Accord is “a lot to pull off,” and Campbell thinks there is “much execution risk.”
The “odds of recession risk have increased,” said Campbell, echoing DoubleLine’s founder Jeffrey Gundlach in DoubleLine’s webcasts and interviews.
Accordingly, the firm likes the front end of the yield curve. “We favor taking more exposure in the front end (2-yr), and [are] underweight the long end. We’re just slightly short of the benchmark on duration, but … underweight longer duration,” said Campbell, who also indicated the firm is averse to credit risk currently.
“Our flagship strategies are moving away from high yield and BBB-rated bonds, and migrating to higher quality paper in each sector,” he added.
Finally, Campbell stressed that he hoped some of the policy uncertainty would [have been] resolved on April 2 with the tariff announcement. Markets need to know “what are the objectives … give us a framework about what’s happening on the tariff side … we need the administration to lay out objectives.”
Resolution remains evasive
Campbell made his remarks to Advisor Perspective before the April 2 tariff announcement, and added by email on April 3 that “the tariffs came out on the high end of market expectations … the Senate mark-up of the budget reconciliation bill is also on the higher spending side as well. These events validate our views.”
On April 7, Campbell wrote in an article posted on the DoubleLine website that “the intention of these tariffs has not been clearly articulated. Are they to be tools to bring manufacturing back to the U.S., increase U.S. exports, achieve other objectives … a new revenue source for the government … or are they primarily to serve as leverage to renegotiate bilateral trading deals with countries around the globe? These questions give rise to uncertainty around how long these tariffs will be in place. The longer they stand, the greater the risk to the global economy.”
The first gambit of the accord, or of Trump’s agenda, is in process now. It looks like shorter duration and higher-quality bonds, European stocks, gold, and some alts are in order for investors regarding the uncertainty Campbell describes.
John Coumarianos is the founder and CEO of Mindful Financial LLC.
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