For a number of years now, we have been weathered by a series of destabilising events: Brexit, trade wars, cybersecurity breaches and global military conflicts. It’s an unsettling mix and the financial markets have needed to be permanently alert. This continues
to be the case with the announcement that the new US President Donald Trump is ramping up similar actions from his
first term by levying controversial tariffs against multiple countries:
China, Canada, Mexico and potentially the
EU.
With this instability, there is an interesting development that happens for fintech and banking. It is a reality that is not immediately positive or negative but, rather, somewhere in between; a mix of opportunity and increasing, skin-itching anxiety depending
which way the wind blows and who you ask.
What are tariffs?
Tariffs are taxes on importing goods, in the simplest sense. Unlike income taxes, they are considered regressive in nature, often seen as a statement but not an entirely
equal one. Tariffs can affect not just local economic growth for the affected country but global inflation and economic outlook. A common misunderstanding is that tariffs are taxes on a country as a whole, but it is actually tariffs on companies operating
within those countries which can be slightly more complicated. Countries have conflicts with each other and it is the occupiers of those countries that bear the weight, not the governing body as such. One of the key issues this can cause is that if it becomes
more expensive for companies to operate then those companies shift the cost to the consumer, creating yet more fraught living costs.
“The impact could be severe—higher prices for American consumers, strained diplomatic relations, and retaliatory tariffs that could hammer US exports,” says Nigel Green, CEO, deVere Group.
Of course, we’ve already seen President Trump receive retaliatory tariffs from Canada and Mexico, only for all to then be later postponed after civilised conversations, prompting some to wonder
if this was more about leverage than long-term follow through.
What does this mean for fintech and banking?
Whether it affects fintech and banking is a little more foggy of a subject as higher consumer costs lead to lower available cash to invest, but also fintech and banking as industries are not subject to the same impacts from tariffs.
Chris Chung, founder, Titan, says: “Yet again, we’re seeing the crypto market react impulsively to macro news. The announcement that the US is imposing tariffs on Mexico, Canada and China has hit altcoins particularly hard, [...] But this panic is,
yet again, an overreaction. Digital transactions aren’t tariffed, so this news has little direct impact on cryptocurrency. In fact, the tariffs will likely attract more inflows into digital assets in the long term, since most of the crypto ecosystem is USD-based.”
Michael Lowry, co-founder and CEO, SC Lowry had a similar perspective especially in relation to alternative options:
“The APAC region is well-positioned to capitalise on growing private credit opportunities amid shifting global financial dynamics. In the US, rising liquidity, intensifying competition, and compressing returns in traditional markets are driving institutional
investors toward higher-yield alternatives.”
Here is the point that makes it difficult to assign a totally positive or negative label to this. The shakeup has thrown many off course and frustrated those in the industry due to a lack of clarity, but it is also seen as an opportunity to, once again,
look at diversification and stabilising investments. It seems that, likely intentionally, this is a win for cryptocurrency markets but still a threat to traditional economic stability. Will alternative options be the only route to surviving any potential fallout
from this?
How to remain safe
Charles Younes, deputy chief investment officer, FE Fund Info has a clear line of advice for those wanting to see it through the next few years as unscathed as possible: “A dynamic, diversified, and proactive risk management mindset will be essential for
navigating the shifting landscape.”
This need for diversification is echoed throughout opinions within the industry, effectively saying that to succeed is to follow the old adage of not keeping all your eggs in one basket. The key will be found in not being too reliant on any one company,
any one avenue or any one strategy.
It is yet to be seen, though, how vast retaliatory tariffs will be and how many more President Trump, himself, will announce. The more that come in, the greater the trade war, the more likely it is that the market will suffer - both for the average consumer
and for the investor.
As Nigel Green put it: “It’s a dangerous game of brinkmanship that could inflict lasting damage on global trade, corporate earnings, and investment portfolios. Investors cannot afford to be complacent.”
So is it a welcome opportunity or a defining first chapter in an inevitable economic downfall? The answer remains uncertain.