Eight years ago, at his first inauguration, Donald Trump delivered one of the darkest addresses in presidential history.

This time round, he tried to make the mood more uplifting, describing himself as ‘optimistic’ and promising ‘a thrilling new era of national success’, although it soon became obvious this success could come at a high price for America’s trading partners.

Describing Trump as ‘ushering in an era of disruption for the global economy’, the Financial Times reported that in an unscripted address to journalists in the Oval Office the president suggested he would introduce tariffs of up to 25% on imports from Canada and Mexico as early as 1 February, sending both countries’ currencies lower and the dollar higher.

This followed initial market relief at a lack of immediate tariffs in the series of executive orders Trump unveiled on his first day.

The incoming US president also threatened to apply tariffs of up to 100% on imports of Chinese goods unless Beijing agreed to sell at least 50% of social media app TikTok to a US company, and said European countries would face tariffs on their goods unless their governments bought more US oil. He subsequently talked about a 10% tariff on China and, again, tariffs on European Union imports to offer a hint of the uncertainty which could come with a Trump presidency.

As Paul Donovan, chief economist at UBS Global Wealth Management, pointed out, any increase in tax on goods from Canada and Mexico ‘would hit the politically sensitive food and fuel sectors’, while a 25% increase ‘would directly raise US consumer prices for imported goods by around 10%’.

For now, it isn’t clear whether these proposed tax hikes would apply to goods such as car components, as the manufacturing process involves a huge volume of cross-border trade, but shares in European carmakers with operations in the US fell sharply on the unscripted comments (US markets were closed on Monday for Martin Luther King Jr Day).

Other notable Day One policy decisions were to withdraw once again from the Paris climate accord and to lift restrictions on oil and gas drilling, along with promises to seize the Panama Canal and to plant the US flag on Mars.

Bloomberg columnist John Authers argues markets matter to Trump, ‘and could function as a guardrail’, meaning policies which upset investors could limit some of his wilder ambitions.

Authers also suggests the administration is using the threat of tariffs as a bargaining tool to bring countries – including China – to the table.

‘Day one might then be a well-camouflaged attempt to leave room for negotiations wide open, both with the legislative branch and with trading partners’.

However, at the time of writing there are another 1,460 days of this to come, so investors had better get used to unpredictability, and an increase in stock market volatility as a result. 

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