Latest / The Dutch Investors / #36 | Thoughts on Trump, trade wars, tariffs, and trust | Are we repeating history?

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#36 | Thoughts on Trump, trade wars, tariffs, and trust | Are we repeating history? · The Dutch Investors

0:00
SPEAKER_00: Let's talk about something that's been on my mind, and probably yours too.
0:05
SPEAKER_00: I would like to share some thoughts on Trump, politics, trust, tariffs, and relationships.
0:12
SPEAKER_00: This episode is different from the others, it's a bit impulsive, may I say, since I don't even like politics to begin with.
0:19
SPEAKER_00: But this episode is also about how the world is shifting, and what that might mean for you, for me, and everybody else in the long run.
0:28
SPEAKER_00: And in that sense, I think it's important to just share some of my thoughts and ideas.
0:34
SPEAKER_00: If you're looking for news or short-term stock market tips, this is not the episode for you.
0:40
SPEAKER_00: And that's fine.
0:41
SPEAKER_00: But if you want to make sense of what's happening and talk about what this means for 5, 10, or 20 years from now, you came to the right place.
0:51
SPEAKER_00: Or to quote Mark Twain, history doesn't repeat itself, but it often rhymes.
0:58
SPEAKER_00: Let's jump in.
0:59
SPEAKER_03: The worst day on Wall Street since the crash of 1980.
1:07
SPEAKER_04: Could anyone do the same thing you did?
1:12
SPEAKER_02: Are you done with it?
1:13
SPEAKER_02: Is it dealing with some early childhood explosion?
1:19
SPEAKER_04: The first of an investment is not an investment is not forgetting the first rule, and that's all the rules are.
1:35
SPEAKER_01: What I needed to get ahead was to meet against idiots.
1:38
SPEAKER_01: And luckily there's a large supply.
1:41
SPEAKER_00: Let me be brutally honest.
1:44
SPEAKER_00: I'm no expert on any of this stuff.
1:46
SPEAKER_00: I'm no history professor or even international relations guru.
1:51
SPEAKER_00: I'm just some guy trying to piece some things together like everybody else.
1:55
SPEAKER_00: But I do have a feeling that sometimes the immediate noise in the news hides a much bigger story.
2:03
SPEAKER_00: And that's why in this episode I want to zoom out and use science and history to make sense of all of it.
2:10
SPEAKER_00: Let me put it like this.
2:11
SPEAKER_00: Right now it kind of feels like Trump isn't playing the usual president playbook.
2:17
SPEAKER_00: It's more like he's making moves as if he's a king.
2:20
SPEAKER_00: He's kind of ruling by decree.
2:23
SPEAKER_00: And one day, a new tariff.
2:26
SPEAKER_00: Next day, a threat to a trading partner or a friend.
2:30
SPEAKER_00: And it's all done through emergency powers that frankly weren't meant to be used this way.
2:36
SPEAKER_00: You can't really escape it, can you?
2:39
SPEAKER_00: You open your phone, turn on the TV, and chances are very big that you'll hear about Trump.
2:45
SPEAKER_00: Regardless of how you feel about him, his influence is undeniable, and with that in mind, and with that often comes talk of tariffs, and this whole idea of America first.
2:59
SPEAKER_00: And we hear the immediate benefits, or what I like to call first-order effects.
3:05
SPEAKER_00: Like it'll protect the US jobs, or finally it's putting our country first.
3:12
SPEAKER_00: Nationalism is a trendy word now, even in Europe, in many countries.
3:18
SPEAKER_00: And sure, it's true, especially in the short term.
3:22
SPEAKER_00: Some industries may experience a rapid increase.
3:26
SPEAKER_00: It's what we call the first order effect.
3:29
SPEAKER_00: But what I want to do now is ask us to zoom out.
3:34
SPEAKER_00: Way out.
3:35
SPEAKER_00: Let's look beyond the six months or even the next election.
3:39
SPEAKER_00: My gut tells me that there's more to this than just what we talked about.
3:44
SPEAKER_00: Let me tell you a story and you tell me whether that sounds familiar.
3:49
SPEAKER_00: In 1930, in the thick of the rising nationalism and economic fear, the United States passed the Smoot Hawley Tariff Act.
4:00
SPEAKER_00: It was supposed to protect American farmers and manufacturers.
4:05
SPEAKER_00: Instead, it helped spark a global trade war.
4:10
SPEAKER_00: Countries retaliated.
4:12
SPEAKER_00: Global commerce collapsed, and a bad recession snowballed into what we now know as the Great Depression.
4:21
SPEAKER_00: Everybody knew it was a bad idea.
4:25
SPEAKER_00: Economists from around the globe told the president that it was a bad idea.
4:30
SPEAKER_00: Heck, Henry Ford went to the president in person and said he shouldn't do it.
4:37
SPEAKER_00: Well, guess what?
4:39
SPEAKER_00: He didn't listen, and the Great Depression happened.
4:43
SPEAKER_00: It was bad diplomacy by a leader that didn't listen to anyone but himself.
4:47
SPEAKER_00: The world turned inward, and when trust between nations fell apart, what followed was a global trade war.
4:56
SPEAKER_00: And I don't bring this up to sound dramatic.
4:58
SPEAKER_00: I bring it up because we have been here before.
5:02
SPEAKER_00: And while today's world looks very different, the playbook feels eerily familiar.
5:09
SPEAKER_00: Tariffs, isolation, the breakdown of long-standing alliances, leaders acting alone, and the global order slowly changing.
5:20
SPEAKER_00: So let's talk about what's happening, and perhaps even more importantly, what it means for the next, say, 10 or 20 years.
5:28
SPEAKER_00: This story is not about Trump, it's a story about trust that, once broken, doesn't heal overnight if it heals at all.
5:38
SPEAKER_00: When you think about what keeps the global economy humming, it's not money, it's not politics, it's not even military power.
5:45
SPEAKER_00: It is about trust and predictability.
5:49
SPEAKER_00: Trust is the operating system.
5:51
SPEAKER_00: Break that, and everything on top becomes fragile.
5:55
SPEAKER_00: It's the idea that if you sign a deal, that deal holds.
6:00
SPEAKER_00: Or that when you say something, you can rely on the other person to live up to it.
6:05
SPEAKER_00: Or even just respecting democracy.
6:09
SPEAKER_00: That if you're an ally, you're treated like one.
6:12
SPEAKER_00: That if you're a business investing billions into supply chains, those rules won't change on a Tuesday morning because someone tweeted about it.
6:22
SPEAKER_00: Because when power concentrates in one person, especially when that person is unpredictable, you lose trust.
6:30
SPEAKER_00: Allies don't know what to expect.
6:32
SPEAKER_00: Businesses don't know what rules to follow, and investors don't know where the economy is going.
6:37
SPEAKER_00: Whether you're a baker down the street or a nation state, trust is the operating system.
6:44
SPEAKER_00: And lately, trust has taken a beating.
6:48
SPEAKER_00: So let's talk about Europe for a second, because that's where we are from.
6:52
SPEAKER_00: Trump, love him or hate him, made terrorists a centerpiece of his policy.
6:58
SPEAKER_00: That's what people voted for.
7:00
SPEAKER_00: Steel, aluminum, washing machines, semiconductors, you name it.
7:06
SPEAKER_00: Sometimes it was targeted at China, sometimes at Canada, sometimes Mexico, other times it hit closer to Germany or even the Netherlands in our case.
7:18
SPEAKER_00: The rationale is to bring jobs back to the United States, protect the American industry, and in the very short term, it can feel like it works.
7:28
SPEAKER_00: But economics, like most things in life, have layers, like an onion, many layers.
7:37
SPEAKER_00: First order effects are easy to sell.
7:39
SPEAKER_00: They're like the first layer, they're easy to peel off.
7:43
SPEAKER_00: The second and the third order effects are a lot harder to reach.
7:47
SPEAKER_00: Most politicians, but also most people, can't or don't want to look out 5, 10, or 20 years from now.
7:56
SPEAKER_00: Unfortunately, almost always does the first order effect win in politics.
8:02
SPEAKER_00: People want to see immediate results and benefits, instead of benefiting from it 5 or 10 years later.
8:10
SPEAKER_00: For decades, the transatlantic alliance was rock solid.
8:15
SPEAKER_00: We had NATO, G7, Trade, Defense, the US and the European Union moved in lockstep.
8:23
SPEAKER_00: We were partners, allies, pretty much on the same page for most global issues.
8:30
SPEAKER_00: That relationship was built on reliability and perhaps even more important, shared values.
8:38
SPEAKER_00: But then came tariffs.
8:40
SPEAKER_00: The sudden decision made without consultation, the questioning of alliances, and frankly, some pretty sharp words aimed at friends who've been there for a long time.
8:53
SPEAKER_00: Trump even said that they might not defend members who didn't pay up.
8:58
SPEAKER_00: And I believe that finally woke up Europe.
9:02
SPEAKER_00: And that's precisely what I believe has happened with the European Union.
9:07
SPEAKER_00: They're realizing that relying so heavily on the United States, something they used to take for granted, isn't a sure thing anymore.
9:17
SPEAKER_00: And ironically, this might actually be a good thing for European businesses and Europe overall, and even their political landscape in the long run.
9:27
SPEAKER_00: They're being pushed to look inward, to build their own strength, to become more self-reliant.
9:34
SPEAKER_00: And you can already see it.
9:36
SPEAKER_00: The EU is actively talking about strategic autonomy.
9:41
SPEAKER_00: They want to depend less and less on the United States, out of a newfound understanding that it's a necessity for their own future security and prosperity.
9:51
SPEAKER_00: It's going to benefit the US in the short term, sure.
9:55
SPEAKER_00: It's going to cost Europe tens of billions of dollars, if not hundreds of billions of dollars.
10:01
SPEAKER_00: But long term, this should be a win for Europe if done right.
10:06
SPEAKER_00: Take the tech world for example.
10:09
SPEAKER_00: The EU has always kept a close eye on American tech, like Microsoft, especially regarding competition rules.
10:17
SPEAKER_00: But now it's more than just regulation.
10:20
SPEAKER_00: They are actively exploring European cloud providers, looking to control their own digital infrastructure.
10:28
SPEAKER_00: The trust is gone.
10:30
SPEAKER_00: It's about who controls our data, who ensures their digital security.
10:36
SPEAKER_00: What if Trump orders Microsoft to close off Office 365 to Europe?
10:41
SPEAKER_00: What if we can't access our personal cloud data anymore?
10:44
SPEAKER_00: It's a scary thought.
10:46
SPEAKER_00: And I think this could really backfire if you look at second and third order effects for the United States.
10:54
SPEAKER_00: Eventually, the EU will start doing things more themselves.
10:59
SPEAKER_00: Yes, the EU has always been slow to adapt due to regulations and different countries involved, but eventually this should work.
11:09
SPEAKER_00: And it's not rhetoric, they're building independent cloud systems as we speak, passing aggressive regulations to rain and big tech, especially from the US.
11:21
SPEAKER_00: And in areas like AI and green tech, they're trying to take the lead.
11:26
SPEAKER_00: Ironically, in pushing allies away, the US may have forced them to grow up.
11:33
SPEAKER_00: Let's walk through something together.
11:35
SPEAKER_00: Let's call it the ripple effect of tariffs.
11:39
SPEAKER_00: Imagine tomorrow the US suddenly drops a 50% tariff on a wide range of imported goods for the EU, which is what Trump is talking about.
11:49
SPEAKER_00: Well I don't know what the American headlines will read, I imagine they are either very excited or skeptical.
11:56
SPEAKER_00: Well, the European headlines aren't so rosy or happy.
12:01
SPEAKER_00: This is a first order effect in play.
12:03
SPEAKER_00: Yes, it might help with getting more investments from US companies inside the US.
12:09
SPEAKER_00: Yes, it might help getting some manufacturing back.
12:12
SPEAKER_00: Most voters and people don't fully comprehend what it all means and encompasses.
12:17
SPEAKER_00: So this first order effect is easy to see.
12:20
SPEAKER_00: Trump can tell things in a funny yet confident-sounding way, making others sound stupid that most people believe it.
12:29
SPEAKER_00: It also sounds great in a tweet, because you can say something and then just walk away from it.
12:35
SPEAKER_00: The whole idea of bringing manufacturing back to America is kinda stupid to be honest.
12:40
SPEAKER_00: You're not going to see Nike making shoes in New York or iPhones being made in Las Vegas.
12:46
SPEAKER_00: And even if they did, man, the prices for these items would be ridiculous.
12:52
SPEAKER_00: And even if we did bring back some factories, they wouldn't be packed with workers, they'd be run by machines.
12:59
SPEAKER_00: A few engineers, maybe some robotic staff, maybe a technician or two.
13:04
SPEAKER_00: But that's it.
13:06
SPEAKER_00: Trump is romanticizing the 1950s, but that's not the world we live in anymore.
13:12
SPEAKER_00: And I believe the long-term solution should be embracing change and innovation.
13:17
SPEAKER_00: Working together, working smarter, not harder.
13:21
SPEAKER_00: The sweatshops in Vietnam?
13:23
SPEAKER_00: That's the reason your Nike shoes can be less than$100.
13:28
SPEAKER_00: Anyway, let's shift gears and talk about companies.
13:32
SPEAKER_00: Let's take our proud Dutch semiconductor company, AZML, for example.
13:38
SPEAKER_00: They're based in Veldhoven, a small town in the south of the Netherlands, and they can make the machines needed to make chips.
13:46
SPEAKER_00: Without their machines, you don't get cutting-edge chips.
13:50
SPEAKER_00: No smartphones, no AI training, no cloud computing.
13:55
SPEAKER_00: So now picture this.
13:57
SPEAKER_00: US companies still need these ASML machines, right?
14:00
SPEAKER_00: To make their chips.
14:02
SPEAKER_00: But now they come with a 50% markup, thanks to the new tariff.
14:07
SPEAKER_00: What happens?
14:08
SPEAKER_00: ASML won't just take a 50% cut, they'll price it into their machines.
14:14
SPEAKER_00: That's the pricing power they have.
14:16
SPEAKER_00: Which means costs go up for American businesses.
14:19
SPEAKER_00: And not just in this specific example, but across the board.
14:24
SPEAKER_00: US companies will either eat the cost or pass it on to you guessed it, you, the consumers.
14:32
SPEAKER_00: At the end of the day, you end up paying more for your phone, for your cloud providers, for your laptop, for the car that now runs on chips, and companies in other countries who don't have to deal with the tariffs just keep cruising.
14:47
SPEAKER_00: Suddenly, they've got a cost advantage over the US, a second-order effect of tariffs.
14:53
SPEAKER_00: But I think it can get even worse.
14:56
SPEAKER_00: This kind of squeeze hits innovation too.
15:00
SPEAKER_00: The semiconductor world, for example, is built on global collaboration, the best minds and tools, all working together across borders, if the US walls itself off, those innovation pipelines start to clock.
15:15
SPEAKER_00: Just look at what's happening at Harvard and other universities in the United States where students outside the US can't study there anymore if plans continue like they are now.
15:26
SPEAKER_00: And I don't think you want to take that road.
15:30
SPEAKER_00: Anyway, back to the ASML example and second-order effects.
15:34
SPEAKER_00: Why would a company like ASML keep investing billions in new technology if a massive market like the US becomes a hostile territory?
15:43
SPEAKER_00: They might shift focus elsewhere.
15:46
SPEAKER_00: China, South Korea, Europe or Canada.
15:50
SPEAKER_00: And now the innovation that used to flow through Silicon Valley might start flowing through other countries.
15:57
SPEAKER_00: Also bad for the US.
15:59
SPEAKER_00: Another not so good second-order effect long term.
16:03
SPEAKER_00: And let's not forget the obvious.
16:05
SPEAKER_00: Retaliation.
16:07
SPEAKER_00: This isn't a game of monopoly where one player wins by bankrupting everybody else.
16:13
SPEAKER_00: Trade is a loop.
16:14
SPEAKER_00: You hit your allies with tariffs, and they're just going to hit you back.
16:19
SPEAKER_00: The EU won't just take a punch, neither will China, neither will Canada, neither will Mexico.
16:25
SPEAKER_00: They'll slap tariffs on American goods.
16:28
SPEAKER_00: Now US exporters are hurting too.
16:32
SPEAKER_00: Jobs are lost in industries that were supposed to be helped.
16:36
SPEAKER_00: Another second-order effect.
16:39
SPEAKER_00: And I can keep going, but I think you get the point.
16:43
SPEAKER_00: It comes down to trust, because once trust between trading partners fades, it's very hard to get back.
16:52
SPEAKER_00: In a future Mental Models episode that's coming soon, I will talk about thinking in scenarios and bets, instead of black and white, and I think that's useful in this case too.
17:04
SPEAKER_00: I think it'll come down to one of these three scenarios.
17:08
SPEAKER_00: Scenario 1 is Trump's master plan.
17:11
SPEAKER_00: Perhaps Trump is a complete genius and we are all wrong.
17:16
SPEAKER_00: I mean it's possible.
17:17
SPEAKER_00: Here's how it supposedly works.
17:20
SPEAKER_00: The US has over 37 trillion in debt, and a lot of that needs to be refinanced soon.
17:27
SPEAKER_00: If the economy slows down, the Fed is forced to cut interest rates, and when rates fall, refinancing gets cheaper.
17:35
SPEAKER_00: It's a very simple to understand, first order thinking.
17:40
SPEAKER_00: And it's actually pretty clever if you think about it at face value.
17:43
SPEAKER_00: Except it's built on a very risky bet.
17:46
SPEAKER_00: Because in a recession, tax revenues collapse.
17:50
SPEAKER_00: The government starts spending more on bailouts, unemployment benefits, stimulus checks, just think back to COVID.
17:58
SPEAKER_00: And all of a sudden, the deficit explodes.
18:01
SPEAKER_00: Just like Covid.
18:03
SPEAKER_00: Then the bond market starts to panic.
18:05
SPEAKER_00: Investors demand higher returns to hold US debt, and now you've got a real problem.
18:11
SPEAKER_00: Well, that's second and third order effects.
18:14
SPEAKER_00: And we've seen these kinds of games before.
18:18
SPEAKER_00: Think of Argentina, Italy, Turkey.
18:22
SPEAKER_00: It usually ends badly.
18:24
SPEAKER_00: So if this is the plan, let's just say I don't know.
18:30
SPEAKER_00: Then we have scenario two, and let's call it uncertainty.
18:34
SPEAKER_00: Let's say Trump keeps the tariffs, maybe he changes them here and there, and that's it.
18:40
SPEAKER_00: This will allow for massive uncertainty from everybody.
18:44
SPEAKER_00: Companies pause investments, layoffs might creep in, consumers might spend less, maybe unemployment ticks up.
18:52
SPEAKER_00: Overall, people just get nervous.
18:54
SPEAKER_00: Uncertainty is the enemy of investment.
18:57
SPEAKER_00: Eventually, people might realize that running a country is not the same as running a company.
19:02
SPEAKER_00: Trump is not per se a great businessman as many believe.
19:06
SPEAKER_00: Just think of Trump Stakes, Trump University, for bankruptcies, just to lay it out there.
19:13
SPEAKER_00: Besides, all this uncertainty will most likely result in a declining and very nervous stock market.
19:21
SPEAKER_00: And even the rich people that voted for Trump will see their worth decline, and they might think twice on who to vote on next.
19:31
SPEAKER_00: Scenario 3 is a full 180.
19:34
SPEAKER_00: Trump decides to roll back the tariffs.
19:36
SPEAKER_00: Not entirely, he keeps a baseline of say 10% on most goods, but he calls it a win.
19:43
SPEAKER_00: He's got a deal.
19:44
SPEAKER_00: Says he got concessions from Japan or that the EU blinked.
19:48
SPEAKER_00: He spins it like he always does.
19:51
SPEAKER_00: See, I won.
19:52
SPEAKER_00: And for a moment the markets breathe.
19:55
SPEAKER_00: Things feel calmer, but make no mistake, the damage is already done if you ask me.
20:00
SPEAKER_00: Trust takes longer to rebuild than it does to destroy.
20:04
SPEAKER_00: And I think he woke up every single nation out there to stop relying so heavily on America and American businesses, and that will hurt in the very long term.
20:16
SPEAKER_00: Now don't get me wrong, I love America, I will keep investing in America, and I realize we, meaning the EU, can't just get off American products or services, perhaps we never can, but the fact that we are now actively working on doing so, that can't be what Trump wanted.
20:36
SPEAKER_00: Although you never really know with the guy.
20:39
SPEAKER_00: Before ending, one more thing I haven't talked about.
20:43
SPEAKER_00: For decades, the US dollar has been the global currency.
20:47
SPEAKER_00: Being the world's reserve currency has given the United States a massive advantage.
20:52
SPEAKER_00: It's why they can run this ridiculously large deficit and still borrow cheap.
20:58
SPEAKER_00: Countries around the world buy their treasuries.
21:01
SPEAKER_00: That demand keeps interest rates low, which means cheaper mortgages, lower car payments, and a better standard of living.
21:09
SPEAKER_00: But if trade shrinks, if trust erodes, that privilege starts to fade.
21:15
SPEAKER_00: And when the world stops parking its money in dollars, we feel it in our wallets, in our economy, and in our future.
21:22
SPEAKER_00: And who knows where the next global currency will go.
21:26
SPEAKER_00: We've seen this before.
21:28
SPEAKER_00: The United Kingdom maybe?
21:30
SPEAKER_00: Rings a bell.
21:31
SPEAKER_00: Well, there you have my final example of a second and third order effect.
21:37
SPEAKER_00: There's a great video on YouTube by Ray Dalio on the changing world order.
21:42
SPEAKER_00: It's definitely worth watching with what is happening now.
21:46
SPEAKER_00: I'll make sure to put it in the description.
21:49
SPEAKER_00: So what happens next?
21:50
SPEAKER_00: I have no idea.
21:52
SPEAKER_00: And neither does anybody else.
21:54
SPEAKER_00: I would say just focus on the fundamentals of the company, focus on being healthy, focus on enjoying life, and ignore all the news and drama as much as you can.
22:06
SPEAKER_00: Don't panic, take a breath, zoom out, and don't sell your future for a short-term headline.
22:13
SPEAKER_00: But like I said before, what the hell do I know?
22:17
SPEAKER_00: Nevertheless, I hope you gain some value out of it.
22:20
SPEAKER_00: Until next time, stay curious, keep learning, and happy tariffs.
22:25
SPEAKER_00: I mean investing.
22:27
SPEAKER_00: Bye y'all.