The Supreme Court’s Decision Will Have Consequences Either Way
It is becoming increasingly apparent that President Trump considers himself above the law and views it as a disposable tool for the executive branch to use as it sees fit. However, this is not how the US constitutional system works. It is based on the separation of powers, a fact that has now also been emphasised by the conservative-dominated Supreme Court. The tirades that the MAGA camp directed at the judges are unprecedented.
There Can Only Be Two Possible Outcomes
- Trump attempts an open coup d’état.
- Trump loses even more credibility and effectively has no power to enforce his decisions anymore
I think it’s inconceivable that Trump can carry on as he did last year. However, it is also clear that his policy has failed. If he chooses option 1, the credibility of the US will be destroyed, causing the rest of the Western world to turn away. This would put massive pressure on the USD, as a Mar-a-Lago Accord would then become much more likely, and no one would want to write off their claims or accept being ‘forgiven’ interest-free for 100 years. This could lead to the US taking a much harder stance towards other countries, with significant consequences for the global economy.
I am considering such a scenario, but I expect with overwhelming probability that it will not come to pass. It would also carry with it the possibility of civil war. I do not believe that will happen. However, the disruption is already well underway. Unfortunately, it cannot be ruled out entirely.
The expected refund claims in the coming weeks are much more likely to cause the network of tariffs to collapse, as Trump is unlikely to succeed in getting Congress to confirm the 15% tariffs. These tariffs are currently based on Article 122 and may remain in place for a maximum of 150 days. Currently, at least six Republicans are openly opposed to the tariffs being approved, and as the midterms draw closer, it is increasingly likely that other members of Congress will join them in their reluctance.
For the Majors, This Means an Increase in Rates Either Way
Political upheaval in the US would trigger capital flight, whereas abandoning the country’s tariff policy would relieve pressure on the global economy. Exceptionally supportive fiscal and monetary stimuli are currently being released. These are partly intended to counter the uncertainty emanating from the US, and partly to overcome the increasing geopolitical and geostrategic challenges.
Of the major currencies, I favour the Japanese yen over the next 24 months, followed by the Australian dollar and the euro. I also expect the SEK and CHF to strengthen against the USD, although I anticipate a slight weakening of the franc against the euro if the USD weakens significantly.
Hard Times Lie Ahead for European Exporters – Unless They Take Action
If the US dollar depreciates, all other currencies will also depreciate in proportion to the euro. This will make what we produce in Europe more expensive in the rest of the world, reducing our competitiveness. This is a structural change, not a temporary episode that will quickly blow over — please wake up!
