Playing Defense and Offense During Trade Wars
- Frank Byrd, CFA, CFP®
- Apr 11
- 4 min read
"Nothing, however, can be more absurd than this whole doctrine of the balance of trade... When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains, in proportion to its declension from the exact equilibrium. Both suppositions are false."
-Adam Smith
A Wealth of Nations
Get Nimble
In the following video, Steve Korn and I discuss how Fielder is advising clients how to position for this new world order. You can listen/watch here:
Highlights:
Scott Bessent's game plan (assuming DJT listens): 0:00 to 5:15
Fielder's concerns - even if his plan works: 5:15 to 10:00
The upside of reshoring - a global cap ex boom: 10:30 to 14:00
Implications for Dollar and international stocks: 15:50 to 21:00
Portfolio strategy: 21:00 to 32:00
Bad Influence
Adam Smith in Wealth of Nations explains why trade deficits do not make a country poorer.* However, Smith warns of a different type of deficit that can impoverish a nation: a budget deficit. It is clear that Trump agrees with the latter, but not the former. At the same time, some members of his administration are more aligned with Smith. It would be a significant positive for our economy, in our view, if their influence prevails. Either way, we are at an inflection point in US policy that will impact global markets for decades. We believe that the impact - prosperity or austerity - hinges on which policy framework wins.
Playing Offense
The reshoring trend has been underway for years for various reasons. Covid and Ukraine accelerated it. The following chart shows the growth in US manufacturing structures following COVID and Ukraine.
If Trump is ultimately swayed by the Adam Smith crowd, that may slow the reshoring trend, but not reverse it. Certain critical infrastructure will reshore regardless (chips, defense, etc.).
Ultimately, we expect this will drive capital expenditure growth globally for years to come. This is why Fielder has exposure to select commodity and natural resource equities in most client portfolios.
These policies could be a net positive for international equities, which are materially cheaper than US equities. Reindustrialization efforts should increase not just in the US but also in Europe and elsewhere. Germany, for example, has already increased defense spending.
Tariffs are inherently inflationary, which is why Fielder continues to hold gold and TIPS (Treasury inflation protected securities) in most client portfolios. Granted, robotics and automation should offset higher labor costs in developed countries, but that's years away. In the meantime, we want to have a portion of client portfolios hedged against inflation.
Trade wars increase uncertainty and could even escalate to military conflict. Certain select private and alternative investments can help with risk management and open our opportunity set to niche areas that have the potential for attractive returns uncorrelated with public markets.
Playing Defense
We believe these policies are negative for market cap-weighted indexes, long term bonds (with the exception of TIPS due to their inflation feature), corporate bonds, and high-yield bonds (indeed they already have been). We have been tilted away from these categories for clients as much as possible/practical.
The best defense is a strong offense. Rather than reactively playing defense, we want to proactively be playing offense (which can only be done if we have a fortified defense in place). Last week we told clients that it was entirely possible that, beyond a certain pain threshold, the Administration could cry “uncle” and do a complete 180-turn. Indeed, that happened yesterday (4/9/25). Worth emphasizing is that all this current pain is self-inflicted. The power to pivot and self-correct is within rather outside the Administration’s control.
Fluid
It is essential that we remain adaptable and open-minded to a range of potential outcomes. This situation is fluid. Now more than ever, we view asset diversification and geographic diversification as critically important. Our goal is to have a portfolio that “breathes” and adapts through this environment – and remains exposed to a thoughtful collection of assets that we believe generates a return ahead of taxes and inflation over time.
Fielder's team is closely monitoring these developments and will continue to adjust our strategy and positioning as needed. Please let us know if you have any questions or concerns regarding your portfolio and positioning.
Yours in the Field,
Frank Byrd, CFA Steve Korn, CFA
IMPORTANT DISCLAIMER: This note is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be completely unsuitable for some investors. Speak with your financial adviser before investing. While the information presented herein is believed to be accurate, Fielder Capital Group LLC (Fielder) makes no express warranty as to the completeness or accuracy. Fielder is under no obligation to notify you of any errors discovered later or of any subsequent changes in opinions. Fielder’s employees are not attorneys or accountants and do not provide legal, tax, or accounting advice. Financial planning and investment strategies have the potential for loss. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable in the future or that investment recommendations or decisions Fielder makes in the future will be profitable or will equal the investment performance of the securities discussed herein. Investing involves risk, including the potential of complete loss of principal amount invested. Fielder offers no guarantees or promises of success. Nothing herein should be construed as a recommendation to buy or sell any securities. Fielder or its employees may have an economic interest in securities mentioned herein.
