For investors, rational decision-taking has become all but impossible

The argument between Trump and the Fed reflects a rising polarisation not only in politics but in so many areas: see Nvidia vs Hinton.

via Alamy/ 3B3HATW

On Wednesday, a new benchmark was set when Nvidia Corporation became the first corporate entity in history to bypass the US$ 4 trillion stock market valuation. It’s hard to keep up with the speed at which Nvidia is developing and upgrading its offering in high-powered silicon chips that have become the key drivers behind the AI revolution, as little as it is with the developments in generative AI, the next stage in the digital revolution that is about to take over the world.

At the same time, however, Geoffrey Hinton CBE, the 77-year-old British-born “Godfather of AI” is warning at every possible opportunity of the fundamental risks to humanity as we know it of letting artificial intelligence, his baby, displace human intelligence at the centre of our world.

Nvidia has for all intents and purposes come from nowhere but suffice to say that its share price has risen more or less tenfold in 18 months. Few who follow markets will forget the mirth with which the decision by Cathie Wood of ARKK Innovation fame – or infamy if you prefer – in October 2023 to sell her 865,000 shares in the company was received, literally days before it began its race to the top. There is an interesting phenomenon in the divergence between the enthusiasm for AI on one hand and the very clear fears expressed by Hinton on the other. In 2025, everything appears to be polarised and there is no room in the middle.

Back in the 1970s, there was a joke doing the rounds which my late father loved to tell that if your Swiss banker jumped out of the window – shadows of 1929 – best follow him for there was bound to be a fortune to be made on the way down.

If Hinton’s apocalyptic expressions were to have validity, and he above anyone else should know, then the Swiss banker can now be replaced by Nvidia CEO Jensen Hwang. Perhaps he has unwittingly become the new Keith Gill, the legendary Roaring Kitty who launched and for some time underpinned the GameStop meme stock madness.

Please don’t get me wrong. I wouldn’t wish to compare Gill and Hwang – one an online stock tipster, the other the founder and CEO of the world’s most valuable publicly traded company but I would not stray too far from comparing the buyers of the respective stocks who really don’t give a toss for the underlying and are happy to book a profit punting on a company which does something they barely understand. Or to try to understand if you care. Even at these levels, most analysts maintain Nvidia as a strong buy.

The analogy to Johann Wolfgang von Goethe’s sorcerer’s apprentice – the original 1797 poem is far darker than Disney’s playful interpretation in Fantasia with Mickey Mouse in the role of the hapless apprentice - can never be far from one’s mind except that Hinton as the sorcerer himself is declaring himself unable to stop the show.

Much the same applies to President Donald Trump and his tariff regime. I think that at the beginning there were many who understood his contentions. The core assumption of the post Bretton Woods era of free floating currencies was that trade deficits would organically lead to a devaluation of the national currency in question which would in turn re-establish the international competitiveness of the deficit running country vis a vis the country or countries producing the surplus. The thought was easy, and it made sense except that the gradual rise of the tertiary sector and financial deregulation led to international flows that were not trade related and that could be captured neither by the General Agreement on Tariffs and Trade (GATT) nor by the subsequent installation of the World Trade Organisation (WTO) regimes. Thus, with the epic inflows into the dollar, the sole remaining reserve currency, the devaluation that should have accompanied the burgeoning US trade deficit never followed.

Donald Trump and his merry men concluded that trade flows needed to be recalibrated and that the only way to do that was by compensating for the overvalued dollar by the imposition of tariffs. A pensive economist would in principle not disagree. That all the calculations and pronouncements appear to have been made to the exclusion of considering of the USA’s massive balance of payments surplus in services looks plain stupid but, given that Joe SixPack the voter wouldn’t know the difference, suited the campaign.

A couple of days ago, I was chatting to a friend in Canada who told me of one of his own chums who had just been to a trade fair in the States. There he had met with his US client to whom he presented his business’s new price list. They were shocked and wondered why the prices had all gone up by so much. When he tried to explain that it was the tariffs, they are reported to have looked at him blankly, having believed the Donald’s assertion that it would be the exporters who would be paying the tariffs. This I fear is not some apocryphal story, it is first hand reported fact.

That said, understanding what impact a 10%, a 25%, a 30% or even a 100% tariff might have on the goods on the shelf is not easy to unravel. The latest Trump declaration to shock markets is the planned imposition of a 50% tariff on imported copper. The USA mines roughly 60% of its own copper needs and imports 40%. By far the largest copper producers are Chile and Peru which between them extract more than a third of all global output. That said and with perhaps 6% of global production, the USA itself ranks at number 5 behind China and the DRC but ahead of Australia. Exactly what the US administration aims to achieve with a tariff on copper slightly mystifies me but if one tries to estimate how much the copper content is in most electrical installations, then one cannot but conclude that other than for copper wire itself, the overall price impact must be very modest.

Altogether, the estimate is that even if the threatened Liberation Day reciprocal tariffs were to be fully imposed on 1 August, the impact on US CPI would likely be not much more than 1% and most probably less.

As far as the White House is concerned, this is a price worth paying to make America great again. From a non-American perspective, Trump has taken a sledgehammer to crack a nut and, as far as the Federal Reserve is concerned, if the inflation target is 2% then an extra 1% on top is a major issue and one that demands reticence in monetary policy.

The argument between Trump and the Fed reflects a rising polarisation not only in politics but in so many areas – Nvidia vs Hinton – and rational decision-taking as far as investors are concerned has become all but impossible. Fed Chairman Jay Powell steps down in May and if Trump succeeds, as I fear he might do, in politicising the Federal Reserve and monetary policy all bets are off.

I was rather taken by a “The Lowdown” podcast with Nick Cohen - who is to my mind one of the more pensive left-leaning scribes - in which he talked to Ben Cohen, a Washington-based Brit who in turn publishes the liberal The Banter Newsletter. They look at the way in which Donald Trump is undermining US democracy under the pretext of enforcing laws that liberal democracy failed to do. They argue that to most citizens and voters illegal immigration is a problem. If they break the law they are punished but living illegally in the country is equally breaking the law and it cannot be wrong for law-abiding citizens, whether of the left or the right but especially of the centre – we hear little of those nowadays – to feel that not pushing back against illegal immigration is tantamount to unplugging the democratic covenant which is respect for the law of the land.

They go on to criticise the left for having for too long cried “Fascist!, “Nazi” and “Bigot” at anybody who disagrees with their worldview and by doing so having debased the accusation to an extent that when fascists, Nazis and bigots do now appear their cries are dismissed or remain unheard. The polarisation and the concomitant vacating of the middle ground which has gripped the social and the political sphere has to some extent also gripped markets.

On one hand are the globalists who in the light of Trump’s tariff impositions expected world trade and the global economy to implode which it has visibly, so far at least, failed to do. On the other are the MAGA bunch who bought the fiction that when tariffs on exports to the USA - or just as accurately imports into the USA - were to be imposed, the US economy would take off like a rocket and that everybody would suddenly have a job and get rich.

There is another option, one which is rarely discussed. I have often been asked why I write so much about America and the US economy. I reply that not understanding the central role that it plays in all that goes on elsewhere is like trying to speak a language by studying the vocabulary but without learning the grammar.

The recent BRICS+ annual assembly in Rio de Janeiro, roundly dismissed by President Trump as being nasty and purely anti-American, raises other questions. The BRICS+ represents 50% of the global population and 40% of GDP. Although as a single economy that of the USA remains the single largest, were the hugely diverse members of the BRICS+ to coalesce and to jointly push back against being bullied by Washington, then there is a growing risk that an aggressive and self-centred America will end up as the big loser.

Trump is right that the country has paid a huge price for being the great guarantor of peace and prosperity although he has not yet acknowledged that the price to be paid for not being that might in time prove to be even higher.

His round assumption is that de-dollarisation cannot and will not happen although by promoting crypto currencies he is doing just that. My crypto guru is a little more sanguine as he points to stable coins as being the link between cryptos and the dollar which he suggests will assure a steady inflow of US dollars to fund the deficit even if trade were in time to be conducted through the blockchain in bitcoin or etherium. I’m not quite so sure that the Trump family’s launch of its propriety tokens $Trump and $Melania were aimed as much at a fostering a new global payments system as they were with getting richer than they already are.