Podcast appearances and mentions of Paul Donovan

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US President Trump left the G7 summit a day early. Their departure does not change much of substance—the US was resisting a joint statement on Iran-Israel. However, there is symbolism about Trump's willingness to cooperate with others. An executive order to implement some of the UK trade agreement was signed, but little progress seems to have been made with Japan.

The ongoing exchange of missile strikes between Iran and Israel this weekend has not had a major impact on financial markets. The severity of Israel's initial strike against Iran was unexpected and caused a reaction. Further market moves would be justified only if there were expectations of even more disruption to energy supplies or shipping lanes.

The scale of Israel's air strikes against Iran were not anticipated by financial markets (US President Trump having suggested a deal with Iran was close, just yesterday). As a result, the oil price has had the largest spike since Russia's invasion of Ukraine. The economic disruption may well be contained—the starting point was quite a weak oil market, given expectations of a US growth slowdown.

Yesterday's US consumer price inflation data showed, as expected, faint hints at the effects of trade taxes and clearer examples of weak demand. The declining number of people wishing to visit the US helped weaken air fares. Goods where inventory is held for longer (like autos) avoided tariff effects for now. Imported goods with shorter inventory times—like bananas—saw price surges. Large consumer appliances had the second largest price increase on record. Producer price data may show more tariff price effects, as these goods sit closer to the point of import in the supply chain.

US President Trump has declared trade talks with China “not easy”. There may be a difference between the administration's perception of its bargaining position and reality. With the 90-day deadline to do deals approaching, no deals have yet been made—and the UK trade agreement has not come into effect. There are suggestions that Trump will retreat from export restrictions on chips in exchange for some so-called “rare” earths.

Media coverage of events in Los Angeles has been intense. There are economic and financial market consequences, but domestic and international investors may react differently. Domestic investors' views will be shaped by their chosen cable news channel, and potentially by fake news on social media. International investors' perceptions of risk will be affected by their own experiences of protest, civil unrest, militarization, and secession.

The US May employment report is due, with the regular reminders that this data has become increasingly unreliable in recent years, and average earnings are not wages. This month's data will correct errors that crept into last month's data. Signs of weakness in restaurant and leisure travel sectors mean fewer lower paid workers may be employed, raising average earnings without affecting wages. But, the Federal Reserve's “data dependency” means the labor market is seen as a trigger for policy action.

A total of 52 out of 52 surveyed economists expect a quarter point ECB rate reduction today. How could so many economists possibly be wrong?

US President Trump's mega-donor Musk was strongly critical of the “big, beautiful bill” currently before Congress. The bill contains many things markets are worried about. Musk's opposition may embolden some Republican senators to oppose parts of the bill (Musk has more money than Trump, but their recent political forays have not been universally successful).

Reports in Washington suggest US President Trump may talk directly with China's President Xi later this week (after several days of more heated rhetoric between the US and China over trade). As Trump has been anxious for the call, and China has not, this may hint at more US retreats over trade taxes as a concession to bring China to the telephone.

US President Trump doubled taxes on US consumers of imported steel on Friday, and (so far) has not retreated from that tax increase. Trump reacted angrily when confronted with the Financial Times acronym “TACO”, and the implication that markets expect Trump to reverse policy rapidly. Investors may worry that Trump persists with these taxes, not because of some economic objective but instead as an emotional reaction to market perceptions of their negotiating stance.

There is yet more uncertainty in the US economy. US President Trump appealed the ruling that their trade taxes were illegal. While this is decided, the taxes stay. There are thus three layers of uncertainty. Will the taxes survive? If they are illegal, will US companies and consumers get refunds? And are trade taxes today actually being collected? There is also uncertainty around how US companies will react to this uncertainty, especially with pricing.

The US trade court ruled that about half of US President Trump's trade tax increases are illegal. Markets reacted positively, but the US has not been reset to its factory settings.

Equity markets seemingly rallied on optimistic comments from US President Trump around trade. So much focus on the words of one individual is unusual. Trump has the power to limit future economic damage from new trade taxes, but cannot undo the damage of past policy swings. For example, comments in yesterday's sentiment data highlighted that companies are delaying decisions in the face of policy uncertainty, even as Trump retreated from some tariffs.

The US long weekend was marked by aggressive policies and then a retreat, but that still leaves its mark on financial markets. The US dollar remains near its recent lows against major currencies. Investors are concerned that the retreats may not be comprehensive, and that economic behavior will still have to adjust to accommodate wild policy swings.

US President Trump has retreated from their threat to aggressively tax US consumers of European products, delaying the suggested 50% tariff to July. These retreats are so frequent that investors should rationally expect them. So why do markets still react to the initial announcements, as happened last Friday?

Administration comments suggest US President Trump is willing to increase taxes on US consumers of EU-made products, if the EU does not make unilateral concessions on tariffs. Markets are unlikely to place too much weight on these threats given the president's tendency to rapidly retreat on such issues, but the situation does (again) increase policy uncertainty.

US President Trump labelled the budget proposal trying to pass Congress a “Big Beautiful Bill.” BBB might be an unfortunate alliteration given concerns about the US credit rating. The details of the budget are constantly changing, so their effects are hard to judge, but the broad impact is to push the US further along a rising debt path. Bond investors are less than happy.

US President Trump urged Congress to pass the “big, beautiful” budget. An International Monetary Fund (IMF) official urged the US to consider its unsustainable debt level, which this budget will likely make worse. The redistribution effects of the tariffs, spending cuts, and tax cuts does have long term implications. In the short term, the deficit's size is likely the focus.

The key message from yesterday's pontification of Federal Reserve speakers was “uncertainty”. Uncertainty about policy, uncertainty about how companies and consumers would react to that uncertainty, uncertainty about second-round effects from tariffs, and so on. The result is a wait-and-see approach from the Fed. The risk is that a reactive policy may come too late to correct any economic damage from all the uncertainty.

A credit rating agency (it does not matter which) downgraded the US from something to something else. US President Trump's current policies are unlikely to place the US on a sustainable debt path. Influential donor Musk's DOGE efforts are unlikely to reduce the deficit. Market reactions should be muted—there is little new information. Administration officials attempted to frame the decision in a political context, but some comments also suggested a limited understanding of the ratings process.

A credit rating agency (it does not matter which) downgraded the US from something to something else. US President Trump's current policies are unlikely to place the US on a sustainable debt path. Influential donor Musk's DOGE efforts are unlikely to reduce the deficit. Market reactions should be muted—there is little new information. Administration officials attempted to frame the decision in a political context, but some comments also suggested a limited understanding of the ratings process.

US consumer price inflation did not show many trade tax consequences. The slowing of tourism-related prices might reflect how visitors are wary of entering the US, but complications in timing Easter's effect are also relevant. Appliance price inflation is a concern (the fastest monthly increase since early 2022 may reflect firms anticipating trade taxes).

Investors are inclined to view US President Trump's early retreat from trade taxes on imports from China as significant, not just for themselves but as a signal of a willingness to capitulate to other countries. Markets are not inclined to take Trump's threats of future possible tax increases seriously.

Sino-US talks over the weekend were described by US Treasury Secretary Bessent as making “substantial progress” on trade. Presumably so important a comment was cleared by US President Trump. The only real issue investors care about is how far the US will retreat on trade taxes. Current tariffs effectively halt bilateral trade. An 80% tariff (suggested by Trump) would also effectively halt bilateral trade. A tax of 20% would damage the US economy, but allow trade to continue.

With continuing uncertainty and volatility prompted by Trump, trade, tariffs and more, Paul Donovan of UBS tracks the latest economic and geopolitical developments in order to help investors stay focused.See omnystudio.com/listener for privacy information.

Yesterday's Anglo-US trade framework was preceded by substantial media spin but ultimately revealed only minimal substance. US consumers are worse off than in January, though better off than a week ago. Some UK exporters get better conditions, some US exporters might get better conditions. Yesterday's Bank of England's rate cut was a more important economic event.

Federal Reserve Chair Powell pointed out that uncertainty had risen, and that inflation and unemployment might rise. These are all eloquent statements of the obvious. leaving the Fed reacting to data. Central banks that react rather than pre-empt data tend to be late in changing policy. Economic data is also increasingly less reliable, making data dependency more dangerous.

India conducted military strikes against Pakistan, and Pakistan's defense minister has pledged retaliation. Investors appear to be expecting a relatively contained situation. It is unlikely that global risk appetite will be affected by these events.

The manufacturer of Barbie dolls has warned that higher prices are coming to US consumers, as a direct consequence of tariffs. Moving production to the US does not seem to be an option. Rationing dolls to two per child while raising prices has limited consequences, but US President Trump has signaled medicines will be next. Rationing medicines with higher prices may have more significant consequences (raising health insurance prices, for instance).

Investors await the Federal Reserve's Wednesday policy decision. There is little expectation of a rate change. Preliminary April employment data showed reasonable strength although some areas of job growth (e.g. trucking) are clearly vulnerable as import volumes slow.

The US “Temu tax” takes effect at midnight, whereby US consumers pay their government for the privilege of buying low cost products directly from China. The tax is unlikely to show up in consumer price data (it is doubtful that Temu prices are used in the calculation), but it is a visible price increase to many US consumers—a reminder that they, not exporters, pay trade tariffs.

The only certainty economists have about yesterday's first-quarter GDP data is that it is wrong. Declining survey response rates and economies that structurally change more rapidly than statisticians can measure have conspired to make GDP everywhere subject to more frequent and larger revisions. Nonetheless, broad trends show an economy being rapidly shaped by US President Trump's policy.

Online retailer Amazon denied reports it would publish the tariff impact on the price of each item sold on its US website. The general lack of tariff transparency risks higher US inflation by enabling retailers to indulge in profit-led inflation—blaming tariffs for price increases that actually raise profit margin. Lack of transparency also risks consumers blaming tariffs for every price increase, reducing confidence and threatening growth.

US President Trump is to mark their 100th day in office with a partial retreat on auto-part trade taxes, and a speech. The speech risks further erratic policy pronouncements—Trump declared very negative approval ratings to be “fake news”, but may want to blame external forces for their poll performance. That might lead to policy pronouncements on immigration, trade, or some other economically significant issue. Uncertainty about such policy shifts has economic consequences.

Last Friday's US data showed a notable improvement in late April consumer sentiment, but only for registered Republicans. Consumers today are buying goods imported before the oppressive burden of trade taxes (on average, it will take about three months for pre-tax inventory to be used). This means economic reality has not penetrated the partisan media bubble around consumers. Businesses are faster to react, with uncertainty fueling a collapse in US port activity as companies “wait and see”.

China said it was not negotiating with the US over trade. US President Trump avowed that the US was talking with someone (who they are talking to is a secret, apparently). Things like this might possibly be contributing to the economically damaging levels of uncertainty. The US and South Korea have agreed a framework for trade talks (North Korea escaped US tariffs). South Korea and the US had a free trade deal with no tariffs at all until a few weeks ago.

The Federal Reserve's Beige Book has biases. The businesses that provide anecdotal evidence will have an agenda, and the Fed economists who edit the anecdotes into coherence understand the economics of trade. Nonetheless, the latest edition used “uncertainty” 80 times—more than twice the references during the pandemic or the global financial crisis. Erratic policies are having an economic impact, and that seems to have penetrated partisan media bubbles.

With investor concerns growing, US President Trump demonstrated the art of the retreat. They stated they had “no intention” of firing Federal Reserve Chair Powell. Trump may not be able to (legally), but markets will still have lingering concerns about Fed independence. Trump also said they would be “very nice” in any trade negotiations with China, raising hopes that the tax burden on US consumer may lessen.

US President Trump again called for lower US interest rates. Markets interpreted this as undermining Federal Reserve independence, and markets do not like that (US assets weakened). The coming US economic slowdown is driven more by rising risk than high rates. Borrowing to fund investment and consumption balances the cost of capital with uncertainty about the future. Rising uncertainty is the US problem.

US National Economic Council Director Hassett said US President Trump was investigating whether they could fire Federal Reserve Chair Powell. Investors seem less than happy with the idea of a politicized Fed—the US dollar and long-dated government bonds have weakened. There are checks on the president's authority. Fed governors need to be confirmed by the Senate. The FOMC chair does not have to be the Fed chair. However, some of these checks depend on rule of law.

Federal Reserve Chair Powell noted US President Trump's trade taxes would raise inflation and lower economic growth. Markets have already worked this out, but Powell saying it has policy implications. On the evidence of (unreliable) sentiment surveys, over a third of US consumers think inflation will exceed 10% this year. Powell emphasized longer-term inflation expectations, which should still allow for rate cuts. The self-inflicted nature of the economic slowdown may limit the number of cuts.

In the short period following early April's “Liberation Day” announcement of tariffs by the White House, questions remain amongst global investors as to whether the world is headed towards a protracted trade war, and a new regime of significantly higher tariffs. What might this all mean for Europe? Which sectors are most at risk? How can investors position portfolios accordingly? Paul Donovan, Chief Economist for UBS GWM, weighs in on these questions, along with co-hosts Christopher Swann and Belinda Peeters.

China halted the import of Boeing planes; US President Trump asked China to call him, and then imposed permanent restrictions on NVIDIA chip sales to China; EU leaks suggest negotiators do not believe the US knows what it wants from trade talks. Economic nationalism remains alive and well and includes capital flows. US TICS capital flows data is due today (but misses large amounts of foreign activity in US capital markets).

US President Trump appears “very happy” with the economic consequences of trade taxes to date, and is therefore proposing to add to US consumers' tax burden with levies on computer chips and pharmaceuticals. The tax on chips will probably reverse some of the effects of the retreat from taxing smartphones.

US President Trump retreated from more trade taxes on Friday, exempting iPhones and some other electronics from much of the 145% tax on imports from China. This would have been a very visible tax increase. While consumers tend to be sensitive to the price of high frequency purchases like food and fuel, a roughly 60% increase in an iPhone's consumer price from trade taxes would be noticed.

Today's guest is Paul Donovan, Chief Economist of UBS Global Wealth Management. In today's episode, Paul discusses the impact of structural changes in the economy, particularly in relation to flexible working and demographic shifts. The discussion also touches on the disparities in innovation between the US and Europe, the ongoing trend of spending on experiences rather than goods, and the role of AI in enhancing productivity. (0:00) Starts (2:37) Economic uncertainty, tariffs, and inflation (12:41) Consumer behavior & spending trends, and perceptions (18:22) Japan's economic shifts and demographic challenges (21:38) Reliability issues in economic data and surveys (31:44) Bad economic policies (38:36) The role of the dollar in the global financial system (44:41) Investment perspectives Recorded April 2, 2025 ----- Follow Meb on X, LinkedIn and YouTube For detailed show notes, click here To learn more about our funds and follow us, subscribe to our mailing list or visit us at cambriainvestments.com ----- Sponsor: YCharts enables financial advisors to make smarter investment decisions and better communicate with clients. Their latest white paper compares four different rebalancing strategies covering 29 years of data. Download here. ----- Follow The Idea Farm: X | LinkedIn | Instagram | TikTok ----- Interested in sponsoring the show? Email us at Feedback@TheMebFaberShow.com ----- Past guests include Ed Thorp, Richard Thaler, Jeremy Grantham, Joel Greenblatt, Campbell Harvey, Ivy Zelman, Kathryn Kaminski, Jason Calacanis, Whitney Baker, Aswath Damodaran, Howard Marks, Tom Barton, and many more.  ----- Meb's invested in some awesome startups that have passed along discounts to our listeners. Check them out here!  ----- Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com). Learn more about your ad choices. Visit megaphone.fm/adchoices

US President Trump's administration clarified the 125% tax on imports from China was 145%. This increase will not shift demand patterns (it will cost US consumers more money). For investors, this raises policy competence questions again. A well-planned trade tax would consider costs. Tax rates set seemingly at random question whether costs are properly considered.

US President Trump's retreat from trade taxes took less than 24 hours. However, taxes on imports from China increased, and the universal 10% import tax stays in place. None of these taxes existed a week ago, and US consumers will have to use income to pay them. Higher taxes on specific products remain, and more are promised.