Ford CEO says it’s ‘chaos’. Sectors hit hardest by Donald Trump’s 25% steel and aluminum tariffs

Deepak Puri, Chief Investment Officer of Deutsche Bank (DB) Private Bank, spoke with Quartz for the latest installment of our “Smart Investing” video series.

Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.

ANDY MILLS (AM): How do you expect markets to react to Trump’s 25% tariffs on steel and aluminum?

DEEPAK PURI (DP): Well, I think the companies that export steel and aluminum to the US, they’re going to have a little bit of a negative price reaction because the chances are with that, those kind of tariffs, there’s going to be a substitution effect. And that’s really is what the administration is trying to do. They want to bring some of these industries back to the US. They want to bring the jobs that accompany these manufacturing back to the US. So I think that’s a very quick knee-jerk reaction. But for the entire trade and tariff scenario, I would say the things that I’m keeping track on is the sequencing of events, the sequencing of which industries or sectors are much more front and center than the intensity of those events. And then the retaliation. So sequencing, intensity, retaliation. And I think just like President Trump is much better prepared to start with trade tariff much earlier in his second term, I think a lot of our trading partners are also preparing for these sort of trades and tariff wars, so they are much more inclined to start reciprocating very quickly. And you’re seeing that.

You’ve seen that initially with Mexico, Canada, when those were announced, then retraced, but the Canadian authorities were very quick to come up with their own tit-for-tat tariffs. And I think similar things could happen, you know as a way of reciprocating for these steel and aluminum tariffs. However, having said that, I think that’s one of the stated goals of this administration is to reduce trade deficit. The United States trades with almost a hundred countries, more than that, and with most of them we have a trade deficit, meaning we import more from that country, then we export to them. And what President Trump is saying that there needs to be a level playing field. You need to open your markets to our goods and services just like we have opened our markets to your goods and services and these trade and tariff wars are nothing but a bargaining chip to come to that agreement. I’m not sure how quickly, if ever you can get to a trade balance with the fact that the US consumer has much higher propensity to consume than the rest of the world, right? We consume a lot more, so it’ll be very difficult to tell other countries that their population needs to start consuming like us. Culturally it’s just not there. So I think the trade deficit is going to remain with us. However, this does score some brownie points because this is something he has campaigned on, so he is following through on his campaign promises to some of those swing states where he won decisively.

AM: Steel stocks reacted positively in the US markets to these tariffs. Do you see other sectors being affected either positively or negatively?

DP: Indeed, there’s going to be, even if the dynamics don’t change overnight, there’s going to be a big bid up in prices for some of the sectors where tariffs might be forthcoming. And there have been talks with regards to pharmaceuticals, semiconductors, automobiles. These are three major industries where tariffs might be coming to from countries that are producing these and then exporting it to our country. So the local pharmaceutical companies, local automobile manufacturers, might be in a better position to play the trade and tariff. But I will say this is one factor that you may want to consider when you’re doing your initial stock due diligence in terms of which stock to pick or which sector to pick. Because the myriad of factors that influence a stock price movement, it’s the macro backdrop of where we are as an economy that plays a much bigger role, the underlying corporate health and feasibility. Are you making earnings? What is your business model? Is it additive? Or have you been increasing market share? So I think those also should play a role in addition to the, the trade and tariff stuff that we are talking about.

AM: The CEO of Ford has come out and said that these tariffs are causing chaos in the auto industry. How do you see them playing out in that sector?

DP: Yeah, autos is one of the key pain points that at least the administration has pointed that we pay a lot less, we have less tariffs on foreign auto producers than those companies have for US auto manufacturers. So there needs to be a level playing field. Having said that, one of the reasons inflation has been so high has been because of used car sales. And then tomorrow we’re gonna get the inflation data. And I’m interested to see what portion of the increase month-over-month is coming from the used car price point. So this is something that’s been going on, it’s a secular trend, it seems. Post-pandemic, people were much more inclined to buy an extra automobile, maybe to go to their second home. And that has stayed even to now, three or four years after the pandemic. So there’s a lot more demand for cause. And if you’re gonna have a supply disruption, they’ll put upward pressure on the price of automobiles, which will then lead into a higher inflation.

Now, one thing I feel, and we haven’t talked much about it, is the inflation. Almost all trade and tariffs are disruptive to the supply chain. And the initial reaction tends to be that inflation expectations may go up. Now for the time being, that hasn’t been the case, but that is one area that I want everyone to be focused on is, are the inflation expectations getting what’s called unanchored? They have been quite anchored at around 3% for the next year, next five years. Do they start going up? Because that’ll be a nice cue for the administration to dial down the trade and tariff talk because people are now expecting this to become much more inflationary and then the rates market is gonna react, which in essence can then have an impact on the stock market. So how it’s flows through into the inflation narrative is really the key to come out of, with regards to automobiles, but broader trade and tariff narrative.

AM: It’s really interesting. And I’m also curious how this shakes out because the Fed is obviously watching inflation, then Trump has opinions about what the Fed should do, and then he’s got his agenda as well, which may have to pivot, depending on what happens with inflation.

DP: Absolutely. And I think that’s why the cards are very close to President Trump’s chest. We just don’t know. But I think the administration knows that one of the reasons the incumbents lost was because of inflation. So to have policies that just spur up more inflation, given that the midterm is not going to be that far away, would be a little bit of shortsightedness.

The other thing I would say is that I think if you’re President Trump and this administration, they’re not looking at this as a four-year term. They are looking this as the next 15, 16 months. The key date in mind for them is really July 4th, 2026. And it’s a heavy word, but it’s the semi quincentennial anniversary of the Declaration of Independence, the 250th year. And given it’s going to be such a historic moment with a president that has this panache for big moments and historic moments, it’s hard for me to see that policies, yes, they may be on steroids now, but may not be ratcheted down given if it starts impacting real economy and the stock market. So I think President Trump wants to enter this 250th anniversary with a lot more optimism about the real economy and the stock market, and they’re gonna do whatever it takes to keep the rally going for the time being.

AM: If you had one final thought to give investors out there, what would it be?

DP: If you’re just strictly talking about trade and tariff, my first reaction would be not to react on everything that comes out from the administration because the markets work in mysterious and complicated ways. That would be one driving factor, but I think it might be shortsighted to just make that decision. So you want to look at other variables that might influence the stock market. The other thing I would say is that trade and tariff wars, obviously they are there, and I don’t think for the next three years we are gonna get anywhere around it. But on the other hand, keep your personal objectives in mind. These are externalities you have little control over. And in some instances it might just purely be noise, but what hasn’t really changed, is if your own personal situation, the biggest risk to your portfolio is not really whether there’s going to be more trades in tariff, whether it’s going to be a recession or even earnings, how they’re doing. It’s really your ability to meet the objective for which you start investing in the first place. Are you on track? So for those kinds of things, it’s always better to keep your emotions in check, be a little bit more objective with your risk assessment, with your return expectations, and take, you know, those as the, the driving factor for your investments rather than taking cues from the outside.