Mr. Chandler says he is traveling, so no Marc to Market until April 26.
From Neue Zürcher Zeitung's TheMarket.ch, April 14:
Financial markets are experiencing significant turmoil. Marc Chandler, chief strategist at Bannockburn Capital Markets, shares his insights on the dollar’s weakness, the Swiss franc’s surge, and the U.S. administration’s efforts to reshape the global trade landscape under President Trump.
The tremors are spreading ever wider. First, US President Donald Trump’s trade war shook equities, then bonds were hit, and now the turmoil is reaching the currency markets. The dollar is under pressure. In trade-weighted terms, the US currency has lost almost 10% since mid-January. Meanwhile, the Swiss franc is living up to its reputation as a safe haven and is rallying.
Marc Chandler, chief strategist at Bannockburn Capital Markets, believes that Trump’s chaotic tariff policy will seal the end of the great dollar bull market. In his view, the impact of current events is greater than the Nixon shock in the early 1970s, when the dollar’s link to gold was cut. «It’s not just about the tariffs, but the new world order that was ushered in with President Trump’s inauguration on January 20th,» he says.
In this in-depth interview with The Market NZZ, which has been lightly edited for length and clarity, the highly regarded currency expert with more than thirty years of experience in the foreign exchange markets shares his insights on the depreciation of the dollar, the strength of the Swiss franc and the growing risk that the US government’s trade policy will push the economy into recession.
«Speculation is mounting about whether the SNB will make an inter-meeting cut,bringing the overnight rate down to zero again»: Marc Chandler.As a currency specialist, what’s your take on the current market turmoil? Some observers are drawing parallels between recent events and the Nixon shock of August 1971.
I think this might be even bigger. It’s not just about the tariffs, but the new world order that was ushered in with President Trump’s inauguration on January 20th. The world we, our parents and our grandparents grew up with after World War II is changing. It was characterized by a system led by the United States, based on a multilateral approach with global institutions such as the World Bank, the IMF, and the World Trade Organization. But now, the US is defecting from this rule-oriented system that it helped create.
What implications does this hold for the global dollar-based financial system?
After World War II, every country tied their currency to the dollar, and the dollar itself was tied to gold. In 1971, Nixon broke that last string between the dollar and gold, but the dollar remained the key currency and we maintained a strong Western alliance, particularly after the 9/11 attacks. This was the first and only time the collective action clauses of NATO were triggered, prompting member countries to rally in support of the US. European countries fought alongside the US in an ill-conceived war in Afghanistan and Iraq. But now, the US has sided with Russia on security issues in Europe, voting against the UN resolution to condemn Russia’s war against Ukraine. Together, with Trump saying the European Union was created to screw the US, this really suggests this old world is over.
The Trump administration also argues that the US has been exploited in trade relations with Western countries for decades, justifying the need for tariffs as a corrective measure.
Of course, free trade was never completely free, but in the post-war era a lot of barriers were reduced. Japan, for example, doesn’t impose tariffs on US autos, so trade restrictions aren’t the reason for their limited presence in the Japanese market. Instead, it’s largely because US-made vehicles tend to be big and gas guzzlers, which doesn’t align with Japan’s consumer preferences. Also, the way we treat our cattle, pumping them up with hormones, is illegal in other parts of the world. So if some countries don’t take our beef or chicken, is this really because they are trying to punish the US? Or are there just some genuine cultural differences?
Where does this victim mindset come from? This idea that the US is being taken advantage of by everyone else?
The cloak of victimhood doesn’t sit well on America’s shoulders. We’re not victims. Only recently, everyone was talking about «American exceptionalism», about the commanding heights of the US economy, with unmatched GDP and productivity. US household net worth has never been higher. Besides China, no other country boasts tech giants comparable to Google, Amazon, or Microsoft. Yes, we have a distribution problem, but that’s not because of what’s going on in Beijing, Brussels or Ottawa. Obviously, free trade creates winners and losers. In past generations, the winners felt obligated to compensate the losers, but that has become less and less so. I mean, do you really believe that countries like Vietnam or Cambodia are ripping us off because they have a trade surplus with the US? Reality is much more complicated than that.
Another accusation is that Europe and Asian nations, like Japan, South Korea, and Taiwan, benefit from US security protection without contributing fairly. Does this argument hold merit?
The reason the US maintains a military presence around the globe is not that we care about other regions per se. But previous generations learned the hard way that the US cannot have peace and prosperity, if Europe and our allies in Asia don’t have peace and prosperity. This is not a case of altruism, it’s a case of aligned interests. Previous US presidents have complained about some countries having higher tariffs or not spending enough on defense. But the reason we allowed this is not because we’re foolish. It’s because the rules of the game are so strongly tilted in the favor of the US that these minor concessions don’t impact our economy. We consciously cut other countries some slack because we were in such a strong, winning position.
However, globalization has led to the loss of many manufacturing jobs in the US. Will tariffs help America achieve a manufacturing renaissance, as the Trump administration claims?
I don’t think Trump’s policies are going to help the middle class. If the US succeeds in bringing back manufacturing and if it’s going to be competitive, there won’t be a lot of new jobs. These are going to be modern factories like the ones in East Asia, highly robotic and highly automated, with few people on the factory floor, primarily supervising machines. If it was true that other countries are stealing our manufacturing jobs, we would expect them to have a higher number of manufacturing jobs. But China, for example, has lost manufacturing jobs on a relative basis. When I got out of school, people looking for an entry level job to get into a bank started as a teller. What happened to all these jobs? They haven’t gone to Shanghai or Hanoi; they’ve been replaced by ATMs. The same thing is true for a lot of other sectors.
The fundamental question is what Trump really wants with the tariffs. He also says that he wants to reduce the US budget deficit, creating leeway for tax cuts.
There’s a fundamental problem with that: If tariffs generate more revenue to finance tax cuts, it’s because that imports are still entering the US, which undermines the other goal of tariffs: to boost domestic manufacturing. I think these contradictory impulses will end up leading to a larger budget deficit, rather than a smaller one. I agree that government debt is on an unsustainable path. But that doesn’t mean this problem has to be solved today or tomorrow. The best way to solve it is through stronger sustained growth. That’s the lesson we could have learned from the Presidencies of Ronald Reagan and Bill Clinton....
....MUCH MORE
The problem with the "sustained growth" argument is that an overwhelming percentage of potential growth was pulled forward by the stimulus of 2009 - 2010 and 2020 - 2024.
Stimulus does not create growth, it just pulls it from the future to the present.
And leaves a debt to be repaid (ha-ha, it will never be repaid) and serviced.
It's the interest expense that gets you when all is said and done.