Of all the lessons I learned managing investments in emerging markets, the most important was to concentrate on the trend instead of the level. You can make a lot of money when a terrible outlook in a risky country turns slightly less terrible.
Over the last two months, President Donald Trump has turned the US from the central pillar of the world’s political and economic order into the main source of disruption and policy uncertainty. Risk assets have sold off, recession talk is rising and corporate strategy teams everywhere have frozen decisions on mergers or acquisitions until the path ahead on taxes, regulation and tariffs looks even a little more clear.
Figure 1. Global economic policy uncertainty has climbed in 2025
Source: www.policyuncertainty.com
This chart is compiled by three economics professors based on media references to policy uncertainty, dispersion in expert forecasts and the number of tax provisions due to expire. While the data are global, the recent spikes align closely with the Covid-19 pandemic and each of Trump’s election victories.
But charts like this never rise indefinitely.
We may not get back to the levels recorded before 2016 anytime soon and the odds of recession may even be on the rise. Those who follow markets closely, however, will be watching for dynamics that may restore at least some temporary calm and slightly more predictability.
Here are five.
First, if tax uncertainty is high in the months before major provisions expire in the US code, the colourful members of the 119th Congress are hard at work on a new budget. A tight Republican majority and a deeply frustrated Democratic minority make for all kinds of member antics, procedural acrobatics and nail-biting deadlines around the parallel debt ceiling debate. But it’s still a good bet that Republicans will pass a reconciliation bill with pro-market fiscal policy before the August recess.
Second, maybe the most encouraging thing to be said about Trump’s tariff policy today is that it’s hard to imagine how it will become even more uncertain. But clarification may be on the way. The America First Policy Trade review is due 1 April and reciprocal and sectoral tariffs are set to take effect the following day. The bureaucratic challenges around assessing numerical reciprocity with more than 200 countries, territories and regional associations are daunting enough. Adjusting for differences in market access, currency manipulation and other non-tariff barriers will take far longer than a few weeks for the work. Still, it feels like these discussions will help frame the debate and create at least a range around where tariff levels are headed. The only thing worse than tariffs is wild uncertainty around tariffs.
Third, retaliation and escalation are among the biggest drivers of policy uncertainty. The European Union in March announced its two-step response to the 25% tariffs on all steel and aluminium imports. China announced a mix of tariffs and investment rules that target US firms. But escalation never continues indefinitely. After the first or second rounds of retaliation, there are reasons to expect a period of relative stability.
Fourth, setting aside all the talk of a 51st Canadian state, summer should also bring early conversations around renegotiating the US-Mexico-Canada Agreement which will set expectations for long-term North American tariffs. Granted, this may only come after the president tries to re-impose 25% tariffs on all Canadian and Mexican goods in early April, but the economic and market reactions to those are sure to make them unsustainable without huge carveouts. Look for Trump to beat a hasty retreat and change the subject to Greenland or the Panama Canal, while negotiations shift to setting some targeted North American tariffs on goods like Canadian softwood lumber and Mexican industrial goods outside the automotive supply chain.
Fifth, beyond tariffs and tax cuts, Trump promised deregulation. Still, revoking large swaths of Joe Biden-era rules has been even more destabilising at first, because many state and local regulations remain in place. But relative calm should return in a few months, especially as new leaders at the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission set out their new priorities. Cutting taxes, deregulation and easing mergers and acquisitions regulation are Trump’s offsets to tariffs.
To be clear, none of these tracks signals a period of calm and predictability. Political divisions remain sharp and Trump has returned to office with sweeping ambitions to refashion the US government and undercut global institutions. His challenges on court decisions and attacks on the press look especially destabilising to the business model that has made America successful for decades. Meanwhile, Trump’s vision of an American economy that vigorously protects national champions risks undermining the competitiveness and creativity that have made the country so successful for so long.
Those are debates for a different time, however, and remain far beyond the narrower interests of financial investors hoping to turn a profit in markets that react sharply to shifts in the trend more than the trend itself. When unpredictability becomes slightly more predictable, the country may still be headed for darker times. But there’s still money to be made in those brief plateaus of relative calm.
Christopher Smart is Managing Partner of Arbroath Group and writes the ‘Leading Thoughts’ column on Substack.
This is an edited version of a Substack article.
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