How Might Trump’s Proposed Tariffs Affect the Dollar’s Strength?
Donald Trump, the President-elect, has suggested new tariffs on countries like Mexico, Canada, and the BRICS nations. These tariffs could lead to uncertainty for American and global companies, causing market instability and unpredictable changes in the value of the U.S. dollar. While big tech companies like Apple, Microsoft, and Amazon might benefit from this situation due to their strong earnings, many other businesses could face challenges. The main concerns are about handling market volatility: How will markets react? Where should investments be made? Could alternative currencies emerge? Companies need to be well-prepared to not just survive but possibly thrive in this unpredictable environment.
Interestingly, while these tariffs are meant to protect U.S. trade, they are actually making the dollar stronger. Simply put, fewer imports mean less need for foreign currency, boosting the dollar’s value. However, the bigger issue will be the volatility that follows as other countries impose retaliatory tariffs and inflation rises.
The Potential Impact of Trump’s Tariff Threats on BRICS and Currency Volatility
Trump has also stated that BRICS countries must agree not to create a new currency, or they will face 100% tariffs. It’s unlikely that BRICS can create a currency to rival the U.S. dollar soon due to their diverse geopolitical and economic interests.
Even if a new currency isn’t a significant threat, the real question for CFOs is not whether volatility is coming, but if their strategies can handle it over the next four years. We learned from Trump’s previous term that currency volatility was at its highest in 15-20 years.
We’re advising our clients to brace for increased currency volatility, adding more uncertainty to an already complex economic landscape. Companies with international operations might need to enhance their hedging strategies.
Which Industries Could Benefit from a Strong Dollar?
Major tech companies could stand to benefit as they can expand their profit margins and maintain earnings stability, helping them manage currency fluctuations. This financial strength allows them to keep competitive pricing and invest globally, even when the economy is unstable. These companies show how being adaptable can lead to sustained growth, even in a volatile market.
Additionally, industries like tech in Silicon Valley and manufacturing in the Midwest could see their global competitiveness increase as their products become more affordable worldwide.
Which Businesses Might Struggle with a Strong Dollar?
A strong dollar can make life harder for U.S. exporters and multinational companies by making American products more expensive abroad and reducing the value of foreign earnings. Companies that manufacture overseas might see their profits decrease and stock prices under pressure due to these currency dynamics.
Emerging markets could also face difficulties as investment flows into the U.S., raising the cost of dollar-denominated debt and imported essentials like energy and grain.
Companies dealing with tariffs and relocating production to places like Mexico might have to pass increased costs to consumers. Global food and consumer goods companies in tariff-affected areas may need to adjust their pricing strategies to manage these additional expenses.
This divide between “winners” and “losers” highlights the importance for businesses to assess their exposure to tariff impacts and plan accordingly.
Predictions for the Market in the New Year
Corporate America is experiencing something noteworthy: a record $3.5 trillion in corporate liquidity compared to $16.6 trillion in revenue, the highest in two years. But unlike previous cash buildups motivated by fear, companies are now stockpiling cash with a purpose, preparing for growth, not just survival. This positioning suggests that they’re ready for strategic moves in an expected active deal environment in 2025.
Historically, when liquidity rises, deals follow. Over the last five years, increased liquidity has been linked to more M&A, IPO, and PE transactions, peaking in 2021 with 8,500 deals. Now, liquidity levels are nearing the 2021 peak, but 2023 saw 1,825 fewer transactions.
This situation arises from market psychology and external pressures such as geopolitical tensions, monetary tightening, and ongoing uncertainty, which have kept many companies cautious.
However, the situation is changing. With inflation easing, interest rates stabilizing, and confidence returning, companies are gearing up for action despite the ongoing volatility.
