Three Tips for Navigating Trumpian Chaos
ChatGPT’s suggestions deserve attention: avoid overreaction; recognise the limits of our agency; seek opportunity in disruption
American erraticism presents new opportunities for Europe — particularly in trade, where third countries increasingly look to Europe amid concern over US policy, and in monetary and financial affairs
The policy zigzags of the US administration pose a curious challenge to those who insist on interpreting world affairs through a lens of logic and coherence: what is the optimal posture to adopt in the face of chaos?
This question — for all its relevance — is one that classical philosophy has largely neglected. It might be more useful to turn to palmistry, or better still, in today’s age, to artificial intelligence.
When asked about the topic, ChatGPT offers three recommendations: avoid overreaction; recognise the limits of one’s action; seek opportunity in change.
These are also useful recipes for interpreting economic prospects. To summarise: during the electoral campaign, and even more so after the inauguration, the newly re-elected President Donald Trump promises fire and brimstone against unfair countries (allies or foes, no matter) that are “robbing” America — simply by selling it products that Americans have been demanding and willingly paying for over decades.
It does not matter that the accusation is groundless, that no serious economic analysis supports it; remember, we are in the realm of chaos.
On April 2nd, dubbed “Liberation Day”, at a cheerful White House garden party, a chart of prohibitive tariffs is unveiled — targeting the entire world. Especially small and poor countries that have spent decades reshaping their economies to serve the American market: Vietnam, Cambodia, and a few uninhabited islands.
Naturally, China and the European Union are also included. “Historical enemies” of the Stars and Stripes, such as Canada and Mexico, spared that day, had already been sanctioned earlier.
Global investors begin to sell off en masse, financial markets tumble, the dollar plunges. Small savers lose billions, while traders and investment banks profit by speculating on securities — both on their own account and for clients (including European banks, as shown by recent quarterly results).
Meanwhile, trade data moves in the opposite direction of what the tariff advocates had hoped: the US trade balance sinks further, as do US Treasury securities. The White House tenant seems unbothered: “temporary turbulence,” he says.
Then the spinning wheel begins. The “reciprocal tariffs” are suspended just days after the announcement; talks begin with individuals once labelled “worse than enemies”, now held in an atmosphere of cordial friendship.
One such example is the Oval Office meeting between Trump and Canadian Prime Minister Mark Carney, full of smiles and jokes — thanks largely to the latter’s superior intelligence and humour.
Until the next fireworks display: tariffs against China are suspended a second time — another 90-day pause, and perhaps more to come. This time, financial markets celebrate; banks earn further billions from the volatility. And who knows, perhaps some frequenters of the rooms where decisions are made have also profited — a suspicion voiced by several sources, though (as yet) unproven. Whoever it was would merely be following the Chief’s example, who, together with his family, speculates in cryptocurrencies.
So how should those on the receiving end of this erraticism — in one way or another — respond? How should the future be interpreted? Here we return to the three pieces of advice above.
The first — “avoid overreaction” — has already been followed by American producers and distributors. The eagerly awaited US consumer inflation figure for April, released on May 13, barely budged: 0.2%, which annualised would give 2.4%. Above the Federal Reserve’s target, but still tolerable. The feared price explosion in the first month affected by the tariffs — which many had predicted — has not occurred.
Will it come later?
Some forecast inflation to reach 3.5% by year-end. But the only certainty now is that everyone — even those setting grocery store prices — has realised that US trade policy is not to be taken seriously: anything can happen. Better to hold off on delicate decisions (raising a product’s price is a delicate choice for any producer or distributor) and wait to see what unfolds.
Those engaging with the US administration — starting with the European Union — should also “recognise the limits of their action”.
Every negotiation is based to some extent on the assumption that agreements will be upheld. That is not the case today — or at the very least, cannot be relied upon.
While avoiding overreaction (such as retaliatory tariffs, which might entrench a counterpart already shown to be capricious and volatile), it is better to work domestically to strengthen the economy — through investment and reform — to make it resilient to any future shock.
American erraticism opens new opportunities for Europe. These arise on several fronts, starting with trade — favourable agreements with third countries looking to Europe after being penalised or simply unsettled by US behaviour — and also in the monetary and financial realm.
The latter deserves particular attention. As capital leaves the US in search of more stable alternatives, and as European banks (including Italian ones), now healthy and profitable, enjoy a kind of “golden age”, the moment is ripe to reform Europe’s capital markets and strengthen the banking union.
Protectionist temptations such as those recently entertained by German and Italian governments in the banking sector are not helpful. New prospects are also opening in currency and payments, with the euro potentially more attractive given the doubts raised by America’s cryptocurrency strategy.
We will return to this point later. For now, it is worth recalling the third piece of advice from our artificial counsellor: “seek opportunity in change.”
An Italian version of this article was published in the newspaper La Repubblica-Affari e Finanza
Ignazio Angeloni
Ignazio Angeloni is a part-time professor at the European University Institute in Florence and a Senior Policy Fellow at the Leibniz Institute for Financial Research SAFE in Frankfurt.
In 2019-2022 he was a Senior Research Fellow in the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. From 2014 to 2019, he was a member of the ECB Supervisory Board.
In 2012-2013, Ignazio was Director General for Financial Stability at the ECB; in that capacity, he coordinated the establishment of the new banking supervision at the ECB.
Earlier, he was Director for International Financial Relations at Italy’s Ministry of Finance, Deputy Director General Research at the ECB, and Director of Monetary Research at the Bank of Italy.
Ignazio holds a degree from Bocconi University and a Ph.D. in Economics from the University of Pennsylvania and has published books and articles in leading academic journals.
He is an IEP@BU fellow.
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