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Your guide to what the American elections mean 2024 for Washington and the world

The author is the Vice President of Oliver Wayman and the former international head of banks and research research various financial statements in Morgan Stanley

What are the long -term financial consequences of Trump’s definitions? We may be in a period of 90 days, but the question remains sooner. A look at Richard Nixon’s experience in 1971 can help investors understand what may happen after that.

Certainly, the recent events share some distinctive features with “Nixon Shock”, which occurred when the president then postponed the dollar from the gold standard, implemented an import tariff of 10 percent and introduced temporary price controls. This disposal of the regime has led to a period of global economic instability and uncertainty. Not only did this cause a loss of work confidence but led to stagnation. It controls the prices of Nixon and wages amazingly, leading to a lack of product and helps fuel the vortex of wage prices. The entire episode was a pivotal contributor to huge inflation in the 1970s.

As with Trump’s tariff, Nixon was introduced to Cudgel countries to change trade conditions to help reduce the American trade deficit. His biggest fears were Japan and Germany. Treasury Secretary John Konali said to him: “My philosophy, Mr. President, is that all foreigners have gone out for the nail for us and it is my duty to link them first.”

In today’s excessive financial world, we have already seen that bond markets can force politicians more quickly. It took four months in 1971 before the Nixon tariff was removed through the Smithsonian Agreement. But the shock has already done enough to stimulate the exceptional changes in financing, which created new tools for betting on the direction of interest rates and the risk of hedge currency, including futures and FX options.

Stagnation pain in the banking system has a major change in financial behavior and financial regulation. Investors allocated assets to gold and real assets to maintain value. Meanwhile, companies and depositors transfer their activities from banks to bond markets. Banking lending as a share of the total borrowing in the economy has decreased since then. In short, modern funding was made in the early 1970s.

There are also similarities for countries outside the United States that are currently concerned about the definitions. In 1971, there was also a poor treatment for the nearest US allies. Nixon Canada hit the tariffs although its currency is already floating. Prime Minister Mark Carney represented today, the Canadians did not retreat, and in the end the definitions were removed. It could have been worse: Konalei also wanted to withdraw the United States from a long -term agreement with Canada on cars and car parts. But Paul Volker fixed this, according to his memoirs, by encouraging the Ministry of Foreign Affairs to tear the last page of each press statement mentioned.

Ultimately, the need to stabilize international relations with the allies helped in determining the balance away from the definitions. Henry Kissinger, the National Security Adviser at the time, “We are concerned about the worrying impact of the lengthy confrontation on allied relationships.”

Nixon also pressed the Federal Reserve for the Expatriate Money Policy to compensate for the shock. William Safeer, the writer of speech at Nixon, tells how the administration maintained a continuous flow of unknown leaks to pressure the feeding chair, Arthur Burns, including floating one proposal to expand the volume of the federal reserve, so that Nixon can pack the committee with new supporters.

Ultimately, the four -month Nixon tax may have facilitated the reassessment of the dollar, but it was less than the required goals and had no significant impact on imports. However, the movement’s economic shock waves extended during decades. Even the creation of the euro stems from it. Could the euro be digital or European capital markets deeper after that? It was not yet clear, but history indicates that the repercussions of this recent shock will feel for years to come.