“Before mounting on stage, I meant to double check my phone to see if there was any new development that required incorporation into this morning’s presentation.” That’s how Northern Trust’s chief economist Carl Tannenbaum, who’s based in Chicago, began his keynote speech at the Association of the Luxembourg Fund Industry’s Global Asset Management conference on 25 March 2025. It was a reflection of how quickly geopolitical events and economic policy have been evolving in recent weeks.
“I titled the remarks ‘Tariff-ied,’ which is not a bad way of describing the feeling that all of us--both within the United States and, I’m sure, in Europe--have been feeling as we’ve digested the new tone and trend coming from Washington.” US president Donald Trump, who took office in January 2025, has upended historical alliances and declared a trade war by announcing or imposing tariffs on various countries. Tannenbaum pointed to the cover of the 15 March 2025 edition of The Economist--which shows a meaty fist squeezing a globe and features the words “America’s new foreign policy” as its headline--as capturing the “zeitgeist” of the state of affairs.
“What I’d like to do at the outset here is perhaps give you some sense of what the values are that are driving the administration’s policy on trade,” said Tannenbaum, adding, “I am not suggesting that you should agree with them--nor that I agree with them.” But understanding the origins of the feelings and the direction of travel can help to address them.
US reasons for trade tariffs
“First, there is a sense amongst the administration that, somehow, the United States has been taken advantage of in trade, that the presence of a trade deficit is a sign that other markets have been trading unfairly,” he explained. There’s also the feeling that exporters in Europe, China and elsewhere would be willing to make changes in order to maintain access to the American markets, as well as the sense that production should return to the United States (not just to North America).
“China will, I think, be the biggest loser, as I’ll note in a moment, because negotiation with China has proven unfruitful. A trade agreement signed in 2019 ended up underdelivering,” Tannenbaum continued. “China was to buy an additional $200bn of American exports, and, at the end of the day, they bought a little over half of that amount.” Besides “substantial” headwinds caused by the tariffs, China is also faced with a challenging property market, expanding unemployment and consumers who are still struggling to recover from the financial and psychological effects of the covid-19 pandemic.
“Also, there is, I suppose, a tax assumption that consumers in the United States--as well as the financial markets--will remain patient long enough for the contours of the White House vision to become clear and for some progress towards that vision to become apparent.”
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“As an economist, there are things that I would point out that might not exactly be aligned with this. There are many reasons why the United States has a trade deficit, and I would say that tariffs are well down the list.” US consumers spend a lot of money, the savings rate is lower than in many developed countries and the US has a well-developed consumer credit system that allows households to continue their consumption, despite income limits. “That kind of balance will inevitably lead to trade coming in our direction and a merchandise trade deficit,” said Tannenbaum.
The US is also an “attractive investment destination” and the US dollar is still the world’s reserve currency, he noted. That means the capital flowing into the US and the dollars that are purchased need to be “recycled,” and often that “recycling” is done by importing.
An example of tariffs… in the laundry room
An excellent case study of how tariffs work, argued Tannenbaum, involves washing machines. “You wouldn’t think that a laundry room is the place to find economic inspiration,” he said. “In 2018, there was concern in the United States that the Korean makers of washing machines were undercutting the market, thanks to support from the Korean government. Tariffs were put on LG and Samsung in order to make American alternatives more competitive.”
The hope was that American companies would use the opportunity to increase their market share. “Instead, what they did was raise their own prices,” Tannenbaum explained. Samsung and LG then built plants in the US--and thanks to automation, these didn’t employ many people. Only around 1,800 jobs were created and the cost to American consumers was estimated at $1.5bn. “Very often, these promises to reshore sound good on the surface, but the cost benefit of these propositions is often disadvantageous.”
On top of that, things are changing so quickly that it creates uncertainty, “which--in itself--is antithetical to economic activity and investment return.” Companies are trying to decipher the latest executive orders; countries and sectors are uncertain around how tariffs will impact them; and tariffs often lead to reciprocal measures. Tariffs and uncertainty can therefore discourage cross-border investment, threaten employment and hinder spending, and force businesses to react to new measures instead of focussing on growth.
No one benefits from tariffs
Top tariff targets include strategic rivals like China or the European Union, noted Tannenbaum, as well as countries with a growing trade surplus with the US.
The aggregate tariff rate is a metric that is “often used to express how bad tariffs have become,” he explained. That’s calculated by the tariff rates multiplied by the products imported. “With the retaliations that are occurring, all countries are seeing their tariff rates increase. And make no mistake, these are taxes. So every country in the world is either restricting the business activity of their local companies, or they are applying taxes to them.”
“Those rates in the United States were running at about three to three-and-a-half percent, and they are on their way to 14%. That is a very high level, and if they go further--and I still think, frankly, the risk is on the upside--they could get as high as they were during the Great Depression,” he said. “I am not predicting a Great Depression, but that reference is interesting, because--as most economic historians will tell you--the presence of tariffs, which were bilateral in that era, made the depression much more difficult.”
There is no one that benefits from a broad trade conflict.
“Already,” he continued, “the OECD has come out with an updated outlook.” The intergovernmental organisation in March revised its projections for global GDP growth down from 3.3% to 3.1% for 2025. Northern Trust in its March 2025 US economic and interest rate outlook noted that it had lowered its expectations for growth and raised its expectations for inflation. “There is no one that benefits from a broad trade conflict. The impact on the globe is expected to be two- or three-tenths [of a percent] in real gross domestic product,” said Tannenbaum. “That may not sound like much, but when you apply it to the global level of GDP, that is a very, very large penalty.”
“Equity markets, as many of you know, in the United States went from peak to trough,” he added. The S&P500 stock index in early March fell more than 10%. “As the trading goes forward, it’s very interesting that it still seems that markets are trying to find silver linings behind all of the dark clouds. I’m hoping that we’re not priced for an outcome that is proving to be more and more elusive.”
Watershed moment for European security
“The other part of the reset from the United States, of course, has to do with security,” said Tannenbaum. “This has been called a watershed moment for the continent, and I don’t think that’s hyperbole.” European Commission president Ursula von der Leyen on 4 March for European defence, .
“Some have suggested that the fiscal stimulus that is now [in progress] creates a kind of ‘New Deal’ for Europe. I don’t think I’m speaking out of school and suggesting that these might not have been the circumstances that we would have chosen in order to develop a fiscal expansion programme for the EU, but that is how we’ve gotten there.” In his view, the amounts “are going to add to economic activity--perhaps in a way that we wouldn’t have wanted--but it’s certainly going to be positive. The projections are that as this gets spent out, we could finally see some breakage of the malaise, certainly in Germany and perhaps in other parts of Europe, as a result of the new defence spending.”
Survival guide
Tannenbaum concluded with what he called a “survival guide” to the next few months. “Things could get worse before they get better. It’s hard to separate the style and the substance, but we must attempt to do so,” he said. “Disruption is not a means to an end. It’s an end to itself, and we should be prepared for more. Incremental change is not what the administration is after.”
“It’s a mistake to think that Trumpism will pass away when Mr Trump leaves the scene. This is a movement and a set of beliefs that is not just durable, but also international,” he said. “Finally, there will be a new model, and hopefully, it will retain some important elements of the old models of global commerce.”