President-elect Trump has recently proposed imposing new tariffs on several countries, including Mexico, Canada and the BRICS countries. How will these proposed tariffs affect the strength of the dollar?
The prospect of higher tariffs creates significant uncertainty for U.S. and multinational companies, which in turn could disrupt markets and lead to unprecedented volatility in dollar strength. While some businesses, particularly Mag 7 players like Apple, Microsoft and Amazon, may benefit from margin expansion and earnings elasticity, many others face growing risks. The key question revolves around managing volatility: How will the market react? Where should the money go? Could new currencies emerge as alternatives? This environment requires businesses to be better prepared than ever to not only weather the storm, but to thrive in an environment that favors those who are willing and able to be proactive.
Ironically, while the proposed tariffs are intended to protect U.S. trade, in reality, they are driving up the value of the dollar. Simply put, lower imports mean less demand for foreign currency, which strengthens the dollar. However, despite the initial surge in the dollar, the real story will revolve around volatility as retaliatory tariffs and inflation set in.
More specifically, Trump said he would require BRICS countries to commit not to create new currencies or face 100% tariffs. How likely is it that the BRICS countries will make this commitment? How will this affect currency fluctuations?
There are a number of factors that make the BRICS countries unlikely to launch alternative currencies to compete with the U.S. dollar, especially in the short term, such as the alliance’s vast geopolitical and economic differences.
While new currencies may not be a realistic risk, the real question treasurers should be asking is not whether volatility is coming, but whether their currency risk management plans are fit for purpose and prepared for the next four years of turmoil. History tells us exactly what will happen – the last Trump administration saw the highest currency volatility in 15-20 years.
We are telling our clients to prepare for additional and heightened currency volatility, which adds another layer of uncertainty to an already complex economic landscape. Companies with significant international exposure may need to enhance their hedging strategies.
The new Trump administration may continue to strengthen the dollar. Which companies or industries will benefit from this?
For major players in the tech industry, this could be an opportunity to emerge as strategic winners. Their ability to expand margins and demonstrate earnings resilience puts them in a good position to absorb currency fluctuations. This financial soundness allows them to maintain competitive pricing and invest strategically in global markets, even in the face of economic turmoil. These companies exemplify how operational adaptability can translate into sustained growth, even in the midst of volatile market disruptions.
In addition, export champions—from Silicon Valley tech companies to Midwestern manufacturers—will see their global competitiveness soar as their products become cheaper around the world.
On the other hand, which companies or industries may face the adverse effects of a strong dollar?
A stronger dollar poses a challenge to U.S. exporters and multinational companies because U.S. goods are more expensive for global buyers and foreign earnings are worth less when converted back into U.S. dollars. For companies that manufacture overseas, this exchange rate dynamic can erode profitability and put pressure on stock prices.
Emerging markets also face headwinds as capital flows to the United States, increasing dollar-denominated debt burdens and raising the cost of imported essentials such as energy and food.
For companies that face tariffs and decide to move production to places like Mexico, they will have to consider passing those increased costs on to consumers. For example, global food and consumer goods giants with investments in regions vulnerable to tariffs may need to adjust their pricing strategies to account for these additional costs.
The division between “winners” and “losers” in the business landscape highlights the urgent need for companies to assess their vulnerability to the impact of tariffs and plan accordingly.
Do you have any unique predictions for the market prospects in the new year?
We’re seeing something extraordinary in corporate America – corporate liquidity hit a record $3.5 trillion, while revenue was $16.6 trillion. This is the highest level in two years and represents an annual increase of $255 billion. But here’s the fascinating thing – unlike past fear-driven liquidity buildups, this time companies are hoarding cash with purpose. They’re not just building a war chest in response to uncertainty; they’re filling the ammunition for growth. It’s not just about survival; This is about the company’s positioning to make strategic moves in what we expect will be a very active trading environment in 2025.
Historically, when liquidity increases, trading follows. Over the past five years, Kyriba’s analysis shows a strong correlation between rising liquidity levels and increased M&A, IPO and PE deal activity, with deal activity peaking in 2021 at 8,500 transactions. Now we see the coil spring effect: liquidity levels are almost the same as the 2021 peak, but 2023 saw 1,825 fewer transactions.
We attribute this to a combination of market psychology and external pressures (geopolitical tensions, monetary tightening cycles and ongoing uncertainty), which have kept many companies in “wait and see” mode.
Importantly, the tide is turning. As inflation slows, interest rates stabilize and market confidence gradually returns, businesses are ready to take action despite the “new normal” of volatility.
