“I have visited the laid off factory workers and the communities crushed by our horrible and unfair trade deals. These are the forgotten men and women of our country and they are forgotten, but they’re not gonna be forgotten long. These are people who work hard but no longer have a voice. I am your voice!”
Donald Trump, after accepting the Presidential Nomination, July 21, 2016
Trump on Trade
Donald Trump has never minced words about where he stands on global trade. The President believes that America is being “ripped off” with its massive handout of foreign aid and lopsided trade imbalances. The United States has the largest trade deficit in the world.
Tariffs are Trumps’s weapon of choice to bring trading partners to the table or to their knees in an effort to keep jobs in America, stem the tide of illegal immigration, and stop the illicit drug trade that has brought thousands of pounds of fentanyl into the United States. While the President’s tariff threats are designed to give him an “Art of the Deal” style upper hand in negotiations, they have resulted in trade uncertainty, the threat of retaliatory tariffs, and possible inflationary fallout — which has been a boon for gold.
Trade Imbalances and the Tale of the Tape.
A trade deficit occurs when a country buys more goods and services than it sells. A simplistic view is that this generally hurts job creation and economic growth in the deficit-running country.1https://www.investopedia.com/articles/investing/051515/pros-cons-trade-deficit.asp
According to the U.S. Census Bureau of Economic Analysis, the U.S. goods and services deficit for November was $78.2 billion, up $4.6 billion from October.2https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf According to Bloomberg News, the merchandise trade deficit hits record levels in December:
“The US merchandise-trade deficit widened in December to a record as the value of imports increased, highlighting a key issue that President Donald Trump aims to rectify in his second term. The shortfall in goods expanded 18% to $122.1 billion, Commerce Department data showed … The figure, which isn’t adjusted for inflation, exceeded all estimates in a Bloomberg survey of economists.”3https://www.bloomberg.com/news/articles/2025-01-29/us-merchandise-trade-deficit-widens-to-record-on-rise-in-imports
Which nations are fueling this deficit? It may come as no surprise that China leads the way followed by Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea and, of course, Canada. Over one third of the U.S. trade deficit, however, is due to Chinese imports.
US Census: November 2024, goods only on a Census Basis, in billions of dollars, unrevised.
Why are the Markets so Nervous?
Tariff feuds increase business uncertainty, cause price increases, product shortages, and of course often trigger a retaliatory trade war which can hurt consumers and slow the economy. The Center for Strategic and International Studies warns that tariffs also disrupt the worldwide network of goods and services which can not only lead to inflation but directly threaten investments and financial portfolios.
“Tariffs will exacerbate vulnerabilities in supply chains. Even as the United States seeks to reduce dependence on Chinese critical minerals imports, tariffs on Canadian imports of uranium, nickel, aluminum, and other critical minerals will undermine U.S. minerals security and the competitiveness of U.S. nuclear energy, heavy machinery, and defense industries. Various macroeconomic estimates suggest that U.S. tariffs on Canada will result in higher inflation and lower growth in both countries. There is a high likelihood that retaliatory tariffs are coming: These will reduce demand for U.S. exports with distributional impacts including in the heartland. The IEEPA tariffs and an ensuing trade war—no doubt stagflationary—will flow through to financial markets, impacting the traditional 60/40 portfolios of most North American public and private pensions.”4https://www.csis.org/analysis/tariffs-using-emergency-economic-powers-risk-undermining-us-economic-security
Simply stated, tariff wars trigger significant economic headwinds. Many consider them to be a sales tax on consumers since Americans will invariably pay more for foreign products. Domestic goods may also spike due to rising demand and product shortages as well as the opportunity for American producers to capitalize on better margins while still undercutting pricier foreign goods. Overall, investment becomes riskier, industry gets less competitive, consumers spend less, unemployment rises, and inflation surges. These very real worries make investors very nervous — increasing Wall Street volatility.
The George W. Bush Institute offers this history lesson:
“In the 1930s, the United States and other industrialized countries raised tariffs across the board, each hoping that by protecting domestic manufacturing they could limit the job losses of the Great Depression and return to prosperity. The result was a series of tariff hikes and retaliatory tariff hikes that wound up choking off world trade. The U.S. and the other wealthy countries of the day were cut off from export markets, which led to a collapse in manufacturing output and only deepened the misery of job loss and depression.”5https://www.bushcenter.org/catalyst/opportunity-road/rooney-tariffs-rising-prices
What This Means for Gold
Gold hit a record high amid President Trump’s tariff threats. New tariffs on Canada, Mexico, China, and the EU raises the risk of retaliation and a full-blown trade war. If things get out of hand, domestic growth could stumble and as trading partners shun American goods, U.S. job losses could also grow. The uncertainty and potential trade fallout has already pushed stocks into a steep decline and fueled gold’s safe haven demand. The precious metal hit an all-time high of $2,830.49 on Monday, February 3, 2025.
Even central banks are eying more gold purchases according to the South China Morning Post:
“Central banks around the world – including those of China, Russia, India and the United Arab Emirates – have been increasing their gold reserves in recent months, but demand for safe-haven assets began to spike after Trump announced on Saturday that the US would impose tariffs on imports from Canada, Mexico and China.”6https://www.scmp.com/economy/global-economy/article/3297307/trump-tariffs-push-gold-prices-record-high-investors-seek-safe-haven
Make no mistake, tariff threats and trade wars are extremely bullish for gold since they increase geopolitical uncertainty, stoke inflation, threaten to slow the economy, and could force the Fed to cut rates. These pressures favor risk aversion and elevate gold’s appeal as a hedge against rising prices and market volatility.
According to Bart Melek, the head of commodity strategies at TD Securities, more all-time high gold records may be coming “We haven’t seen a complete response from gold and if this trade war continues for a considerable period, it could lead to significantly higher gold prices down the road.”7https://www.mining.com/web/gold-price-rises-to-fresh-record-as-trump-tariffs-trigger-haven-demand
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1 https://www.investopedia.com/articles/investing/051515/pros-cons-trade-deficit.asp
2 https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf
5 https://www.bushcenter.org/catalyst/opportunity-road/rooney-tariffs-rising-prices
7 https://www.mining.com/web/gold-price-rises-to-fresh-record-as-trump-tariffs-trigger-haven-demand
