President Donald Trump must decide what his sweeping tariffs are for in order to rescue markets from their ongoing collapse, a private equity chief has said.
“The markets are in turmoil because they aren’t sure what we’re solving for, because the messages have been quite mixed,” Hamilton Lane co-CEO Erik Hirsch told City AM.
Trump and his advisers have presented a range of contradictory justifications for the tariffs, from collecting revenue to bring down the US deficit or cut taxes, to bringing manufacturing back, or to negotiate better trade deals with other countries.
“Which of the three things are we solving for, or are we trying to solve for all three of those? To me, I don’t think all three are solvable,” said Hirsch.
Trump has made contradictory claims over the issue, stating that the new sweeping tariffs, which snap between 10 per cent for the UK to 104 per cent for China, are simultaneously permanent and also could be negotiated.
“I think you’re going to see the administration pick and choose amongst the three in different places depending on the product line, depending on the trading partner, and depending on the relationship with that trading partner,” Hirsch said.
Signs have already begun to emerge of an approach that varies across nations, with Israeli prime minister Netanyahu flying to the White House to talk trade and negotiations ongoing with the UK, while China ramps up retaliatory tariffs.
Hirsch compared the market reaction to tariffs to a multi-variable maths problem, with the uncertainty over the outcome causing panic on the stock exchange.
“The market’s gonna need to see some of these variables begin to get locked down in order for us to solve the equation,” he said.
Market turmoil’s impact on private equity
Hamilton Lane, which focuses on the private equity sector, said the market turmoil was already leading to “fewer new deals and fewer exits” in the space.
“In a time of uncertainty, you tend not to want to buy something, and you tend not to want to sell something,” said Hirsch.
“If you own a business, you’re rationally thinking to yourself, today does not seem like a great day to sell this. Maybe I’ll wait for tomorrow, see if it gets better.”
However, Hirsch noted that many smaller private equity businesses he focuses on will be somewhat isolated from the affects of the tariffs, due to their lack of multinational supply chains.
Indeed, since Trump’s tariffs were unveiled last week, the smaller companies on the junior stock exchange AIM have fallen less than nine per cent, compared to the 11 per cent drop in the FTSE 100.
In addition, the US moving away from trading with the rest of the world may actually push the UK to make stronger international trade agreements with new countries, he said.
Hirsch went as far as to say that the tariffs may make smaller companies more attractive, as investors look for businesses unaffected by the trade wars in local and regional businesses.