Do Markets care about Trump’s Tariffs?

0:00Moments.

0:02Andreas Steno Larsen:They have the power to change everything. The moments we try something new. The moments we travel thousands of miles. In seconds. The ones that transform how we spend. How we save. How we build. The moments we connect and create memories that last a lifetime. The moments 300 million people say in unison, we want a better way. But the moments that really matter are the ones that come next.

0:45Hey, everyone.

0:46Mikkel Rosenvold:As you know, on this podcast, I bring the best guests in the world at that nexus of understanding of macro crypto in the exponential age of technology. If you're enjoying the show, a quick five-star rating goes a long way. It helps us grow and keep these conversations coming with the best guests in the world. Thanks a lot.

1:10Mikkel Rosenvold:Hello out there. Welcome to Macro Mondays here at Real Vision. My name is Mikl Rosman, and I'm joined as usual by my co-host Andreas for this Monday show. We have so much to talk about, Andreas. How are you feeling today?

1:27Andreas Steno Larsen:You know, I'm a little annoyed with everything that happened over the weekend with tariffs. I personally hoped that we could put that topic to bed, especially since it's so blown out of proportion. But here we are again talking about tariffs, right, left and center. All of the negotiations with trade partners are up in the air again. So, yeah, I guess we'll have to just accept that terrorists are here to stay.

1:55Mikkel Rosenvold:We'll try and break it down a little bit today, Andreas. During the week, we have a lot of great shows coming up on Real Vision. Today, this is obviously our free show that we publish on Real Vision as well as YouTube and X. That gives you a sneak peek into our view of the world of macro. During the week, we have tomorrow, we have the Macro meets Micro show where we dive into our model portfolio, Andreas. and on Thursday at 11 a.m. That's tomorrow is 11 a.m. as well, Eastern Seaboard time, but Thursday at 11 a.m. we have Shooting the Shit together with Roel and Julian and you, Andres. So a great week coming up, lots to talk about both in the world of AI, which is really moving out there.

2:35Mikkel Rosenvold:Not so much perhaps in stock markets, but in the real world, so to speak, things are really, really moving right now, Andres. And we're going to talk a little bit more about that later. But first, Andres, before we get to tariffs and AI in Iran. It's time to remind people of our little disclaimer. And I've brought the shirt on today. I don't know if people can see it, actually. But it's always good to remind people that we try to be as actionable and as concrete as possible, but that our ideas might be...

3:03Andreas Steno Larsen:Sometimes it may be good, sometimes it may be shit.

3:08Mikkel Rosenvold:That's the way it is, Andreas, especially in these choppy times and markets. So, Andreas, should we jump straight into the terrorist talk? We obviously had, as usual, Friday night, our time, the news that the U.S. Supreme Court has ruled the IEPA tariffs illegal and basically squashed them. Trump reacted to this very, very quickly by issuing sector one to two tariffs, broader tariffs on essentially the rest of the world at 10%, then raised them to 15%. And even though these are broad tariffs, it obviously hit disproportionately because the IEPA tariffs were not broad. So maybe we should start out with this chart of winners and losers from this weekend, at least so far.

3:56Mikkel Rosenvold:We know things tend to move a lot in the coming days. But Brazil, China, India, the BRICS countries, essentially the big winners, Canada and Mexico as well. And then the European partners and the East Asian partners hitting. Do you think this was working as designed or do you think this was prepared or was this just sort of a knee-jerk reaction by Trump to issue these 10 % and 15 % general tariffs?

4:23Andreas Steno Larsen:To be honest, I don't have the impression that this was particularly prepared, especially if you look at this scoreboard, right? There was a reason why China had a higher tariffs than the rest of the world. There was also a reason why India had a higher tariffs rate than the rest of the world. It was to put pressure on India in relation to the energy purchases from Russia. The tariff on Brazil was very linked to the pressure he wanted to put on Lula and his administration. And at the very other end of the scoreboard, the deal that was struck with the EU is currently up in the air because the EU basically does not accept this picture on the screen right now because a deal is a deal.

5:10Andreas Steno Larsen:That's to quote a few officials from the EU today. And if the deal is no longer valid, why should we ratify it? Why should we work together with the US to put everything into sections and so on and so forth? So I guess the sad truth here is that none of the trade deals that were agreed upon last year are currently in motion. to be honest, because why would you as a trade partner accept this? And therefore, yes, he put it at 10, maybe 15%. It's not really fully known at this stage. Brought tariff on everything. But is it really the true tariffs right now? We're stuck with uncertainty around that again, Mikkel.

5:55Mikkel Rosenvold:Absolutely. And it's also important to know that these sector 1, 2, 2 tariffs are temporary, 150 days, then they have to be ratified by Congress. And I mean, if there was a clear path to get this ratified by Congress, he would have done so already. And this is sort of the core of all this is that it's not that terrorists are illegal per se, but Trump cannot issue them just like that. He needs to get Congress on board and he hasn't been able to sell it, neither to his party colleagues in Congress or to the American population. So the closer you get to a midterm, the harder it is to get this passed by Congress.

6:31Mikkel Rosenvold:And most likely, it still wouldn't be what Trump wanted, because if this had to get passed, if Congress were to pass a new trade law, including provisions for tariffs, it would be put in legal terms. It would be structured. There would be some kind of structure to it. And that's not what Trump wants. Trump wants this on his hand to play his cards in a poker game, essentially. And he's not getting that if this is a new trade law getting passed through Congress. So it's a very strange place we're at where it seems like the administration are looking in all cupboards and everywhere around. Is there some sort of sector, this or that, that we can use to issue some levies to keep this pressure going on?

7:17Mikkel Rosenvold:But of course, in the long term, something has to be codified into law, essentially. And that's where this gets interesting. But that's probably not at the side of the midterms, Andreas. What's interesting is...

7:29Andreas Steno Larsen:But just before we went on air, I just wanted to get that in there. Trump basically posted on Truth that as a president, I do not have to go back to Congress to get approval of tariffs. It's already been gotten in many forms a long time ago. And that was also just reaffirmed by the Supreme Court decision on Friday, apparently. So, I mean, he's not giving up without a fight. Let me put it like that. And let's see where this ends up. No, and I mean, just taking a bit of a detour here, Andres, this is a proof that the U.S.

8:01Mikkel Rosenvold:system is working. And we're hearing a lot about, especially here in Europe, that Trump is an autocrat and he's broken the system. And there's no, this is checks and balances. Trump is testing the limits of the presidency and the presidential authority. He's supposed to do that within the Constitution. And then he gets squashed by the Supreme Court. The thing is, Andres, this causes a lot of turmoil in markets. We will get back to that. Let's just touch on China a little bit, because I still tend to think that a lot of this is about China. Where does this leave Trump ahead of the April meeting with Xi?

8:31Mikkel Rosenvold:Xi doesn't have to worry about the Supreme Court, so Xi can do whatever he wants, essentially. That's not entirely true, but it's much, much simpler for him to negotiate one-on-one and to throw these things on the table. What's to stop the Chinese from making even more offensive pushes at this meeting, you think, Andreas?

8:52Andreas Steno Larsen:Nothing. I think that's the short answer to the question. I spent a lot of time yesterday digesting some of the editorials written by the Chinese state media on the topic. and it's a very typical Chinese modus of Irante to state that they're not going to take an aggressive stance ahead of these April talks on trade. But at the same time, they explicitly write in these editorials that this will put China in a much better position from a bargaining perspective ahead of these negotiations. And my own fear right now is that China is readying some sort of supply chain weaponization package ahead of this meeting to try and test whether the U.S.

9:43Andreas Steno Larsen:has anything to retaliate with. because that was essentially what happened in April last year. The US played hardball. China responded with a weaponization of the rare earth supply chain. And then Trump added tariffs back and forth during April and May. And ultimately, Trump had to back down because this risk of a weaponization of the supply chain of rare earths was too much to swallow, basically. And then again, in October, November, we had the same situation. China basically told the West that they wanted to implement this new licensing regime for rare earths. And Trump responded with these targeted tariffs that he's no longer able to use now.

10:33Andreas Steno Larsen:And that kind of led to this ceasefire of 12 months. But that ceasefire was dependent on Trump being able to retaliate with targeted measures against China. And if he's not able to do that now, why would China not try and take advantage of that situation? I think that's the simple backdrop right now. And I also, you know, I think that is the reason why we see metals trading higher again on the back of what happened on Friday. You know, we have gold higher, we have silver higher, palladium higher, all of these metals are higher. And I think it's a very, very relevant question for these talks in April, whether China will accept the ceasefire that was agreed upon in Q4, because the playing field is simply not the same as when they agreed upon the ceasefire.

11:29Mikkel Rosenvold:No, I agree. The one thing that gives me a little bit of hope in this address is the sector 301 tariffs, not to get too specific on this, but that allows the administration to levy tariffs on countries deemed to have set up unfair trade barriers. So if China pushes through with the rare earth licensing system that could be understood as a trade barrier, an unfair trade barrier, could allow Donald Trump a little bit more leeway. But again, it's a legal matter. He'll probably have to go through the Supreme Court. This puts him in a very, very weak negotiating position. We just have to say the say as much, Andreas.

12:06Mikkel Rosenvold:And it's a hot potato ahead of the midterms as well. I think most Republicans will try to keep this at arm's length. let's take the macro picture here for one interest do we know anything about these new flat rate tariffs how much revenue they're going to bring in you wrote a little bit about it earlier today can they make up for what was lost quotation marks for the IEPA tariffs or what does that equation look like

12:38Andreas Steno Larsen:so maybe we can bring up the chart from the treasury on the running intake of tariffs because we've been running close to, say,$300 billion on an annualized basis, which is decent. You have it as a percent of GDP on the left-hand scale here. So we're talking a little less than 0.5 % of GDP at peak. These specific tariffs related to the ruling on Friday made up a little bit more than half of that. So now that he's replaced those with this 10, maybe 15 % broad tariffs rate on the rest of the world, we'll probably end up 0.1 percentage points in GDP terms below what we had on Friday, something like that.

13:26Andreas Steno Larsen:so you know we're talking about a roughly unchanged playing field from a fiscal perspective in my opinion but you know remember this look at the left hand scale of this chart again at max we talked about we were talking about an impact of yeah 0.5 percent of gdp and you know the details we're talking about around the changes since friday make up 0.1%, maybe 0.15 % of GDP. It's a complete nothing burger from a fiscal perspective. And even despite that, we're talking about it all the time. I'm just staring at my Bloomberg feed here. I see three or four posts from sell site shops, including some of the researchers at Bloomberg now.

14:15Andreas Steno Larsen:Oh, maybe these new 10 % to 15 % tariffs will lead to higher interest rates and higher inflation over the next two or three months. It's the same discussion we've been stuck in for the better half of 2025 and also the beginning of. So a quick break in your regular programming.

14:31Mikkel Rosenvold:If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now.

14:46Andreas Steno Larsen:2026. And the market keeps expecting this to have a big impact on macro. And it doesn't. You can take a look at the inflation outcomes versus what was priced in by economists month in and month out. We haven't had a single inflation print above what was expected since Liberation Day. We're consistently printing at or below expectations. So I think this is blown way out of proportions because it has become a politicized arena. What is not blown out of proportion is the impact on geopolitics, the impact on CapEx and some of these side effects that go highly unnoted by many. But the direct impact on GDP, the direct impact on inflation, it's neglectable.

15:38So, yeah.

15:39Mikkel Rosenvold:One question we had, Andreas, in the inbox here, and I think it's quite interesting, and I'm not sure neither of us really knows the answer here. We've been talking about the outpour of liquidity from the TGA after the government shutdown. We were expecting a nice influx of liquidity into markets during February and March. If the government has to count in or account for refunds of more than$100 billion, does this cut into the money that we were expecting? Does this force the Treasury to heighten its cash buffer? Do we have any idea of this yet?

16:16Andreas Steno Larsen:Well, the short answer is yes, that will obviously be a factor impacting the Treasury General account if they have to refund, I think,$151 billion, to be very precise or specific. The issue here is that the Supreme Court ruling does not factor in any decision on refunds. and as far as I'm concerned from a legal perspective they will allow courts lower in the system to decide on that at least to begin with I don't have a firm view on the timeline here but I would I strive to imagine that it's something that will play out over the next couple of weeks at least so it's something that we simply don't have the answer to as of now

17:00Mikkel Rosenvold:No, no that could take a while to get these refunds out it's not automatic The question is, I guess we'll see this in coming days and weeks, if the Treasury feels a need to prepare for that situation. But let's hold off on that. An interesting note, though. So, Andreas, just to sum up here, does this alter your view of the macro outlook? Does this postpone anything, change the timelines? What do you think overall?

17:28Andreas Steno Larsen:Yeah, so for those of you who have followed this podcast and now research for the past, say, 12 or 18 months, you'll know that the tariffs debacle between the US and China, both in April and October last year, kind of nuked the cyclical momentum in the US economy twice last year. What I fear here is that we see something similar to that playing out through April. And it's something that we'll have to be very vigilant about because if we get a new standstill in the trade between the U.S. and China, that's obviously something to consider in terms of the cyclical developments in the economy. So, yes, it has the potential to break havoc with what otherwise appears to be a very strong cyclical upswing in the U.S.

18:16Andreas Steno Larsen:economy right now. and it's something that we'll have to be open to discussing in the current environment. As of now, I don't think we have any evidence that this has slowed anything.

18:31I don't know,

18:31Mikkel Rosenvold:Andreas. Should we move on to talking a little bit more about AI, Andreas? Because it's red hot out there. One thing is stock markets, another thing is actual businesses. I think over the past few weeks if even months. Things are moving very, very rapidly in AI space. The implementation, the sheer speed of change that's going on out there is incredible. We brought on a few hot takes here. I wanted to bring this. I think this is the one, yeah. So I'll let you introduce this address, but we obviously have brought the chart the chart on how quickly Claude is able to exponentially scale up in the lengths of tasks it can manage.

19:25Mikkel Rosenvold:I'll allow you to introduce this one, Andreas.

19:27Andreas Steno Larsen:Yeah, so this is basically one of my favorite charts. It is from the institute called METRA. And what they do is that they hand the large language model a set of tasks related to software engineering. And then they measured the success rate of the large language model for all of these tasks. And basically what they wrote when they updated the study with the Opus 4.6 model, the latest clock model, was that they were simply running out of tasks that they could feed the model with because it had a very strong track record solving these things, at least with a 50 or 80 % success rate. Then this guy on Twitter says, I've adjusted the chart for the fact that LLMs do not have a 100 % success rate on anything.

20:21Andreas Steno Larsen:And that's true. It is actually true. At least you would need to feed it with incredibly easy tasks for it to have a 100 % hit ratio. And then I responded to this guy, well sure but please point me in the direction of a human with a 100 % hit ratio on these things yeah anything yeah really yeah you probably can't find a human capable of having a 100 % hit ratio on two plus two equations right but you know what I mean relatively complex tasks no one will have a 100 % hit ratio on those then the guy responds to me well a calculator has a 100 % hit ratio. And I think you could get a similar 100 % hit ratio in another level if you practiced it on similar scores, right?