UBS currency strategists have embarked on the complex task of explaining the current historic and economic developments, in particular, the effect of so-called Trumponomics.
At present, uncertainty is mounting around the future direction of US economic policy and President Donald Trump’s tariff agenda. This uncertainty is deeply troubling investors, who are struggling to keep their footing. According to UBS currency strategists, the lack of clarity is fueling volatility and eroding market confidence.
Amid this landscape, Jason Draho, Head of Asset Allocation for UBS CIO Americas, has tried to get to the heart of Trumponomics. He concludes that even within Trump’s own administration, a cohesive economic vision is hard to define. “That's the trillion-dollar question and my honest answer is that I'm not really sure,” Draho admits.
Trump’s first term was characterized by tax cuts, deregulation, and increased spending, but today’s situation is far removed from that era. Jason Draho observed that President Trump's current approach appeared more fragmented and harder to define. Draho suggested that this lack of clarity was generating confusion and anxiety, placing significant pressure on financial markets.
In his view, tariffs are both the stumbling block and a key factor behind recent market weakness. Notably, the new round of reciprocal tariffs from the White House is broader in scope than before and lacks a clear objective. Draho noted that it remained uncertain whether the tariffs were intended to create a more level playing field for trade or to eliminate trade deficits entirely.
There are also contradictions between stated goals. While the president has promised to reduce the budget deficit, he is simultaneously pursuing policies that could increase it. Experts point to the risk that tax cuts financed by tariff revenue could backfire.
Efforts to boost domestic energy production in the US could also be undermined by higher raw material costs because of tariffs. Moreover, reduced imports due to reshoring could decrease tariff income. “That will lead to larger fiscal deficits, especially if the expected tariff revenue is used to pay for larger tax cuts now,” Draho notes.
Given the current uncertainty, markets have reacted accordingly, pricing in a higher likelihood of a recession. Bond prices and the dollar have tumbled, spreading panic among investors.
UBS analysts say Trump’s “ideologically muddled” political stance only adds fuel to the fire. In the early days of his second term, two competing visions have emerged: the populist “America First” (MAGA) approach and the fiscally conservative DOGE framework. Neither has gained the upper hand so far.
The postponement of certain tariffs and exemptions for tech products like semiconductors and smartphones suggests a pragmatic side to Trump’s policies. Still, investor confidence remains low and volatility is high. “Hope is not an investment strategy, and investor confidence will remain low and markets volatile and likely range-bound until there’s some clarity and consistency to Trumponomics,” Draho concludes.
