Trump’s muscular Inaugural Address will make waves for years to come.

Executive summary: Trump delivered a muscular Inaugural Adress today that marks out a confrontational policy both domestically and internationally, but with few immediate measures the market can grab onto for a sustained reaction until further details are known. News earlier in the day from the WSJ on a tariff memo defused the immediate threat of tariffs, but neither did it provide longer term clarity on the scale of that threat to market- and USD sentiment.

Market reaction: US equity and bond markets were closed for a national holiday today, but the currency market slightly unwound a portion of the US dollar weakening that unfolded on the WSJ earlier in the day as Trump still intoned rather seriously on tariffs and has set up the country for some kind of showdown with China on the lack of compliance with the prior trade deal from 2020 and possibly over the Panama Canal.

What now from here? The market may feel it has some further room to bounce back as the worst fears were not realized on tariffs on Trump’s highly touted “Day One”, but the setup keeps many areas open for significant headline risks.

Trump delivered an inauguration address that was very much along the lines of the one he delivered to kick off his first term of office in 2017 as he took an “America First” stance, with a very aggressive positioning of his new administration on all issues, from cultural ones domestically in favour of traditional values and against affirmative action to geopolitical ones, especially on the border and declaring a muscular approach on America’s place in the world as well as on tariffs. He made good on a social media post from last week in which he declared he would create an External Revenue Service for collecting tariffs and duties from foreign trading partners, from which we can infer anticipation of significant tariff revenue. He praised President McKinley’s tariff policies, which few likely know were declared when McKinley was a senator in 1890 before he was elected president in 1896. The tariffs were very unpopular as they raised the duty on some goods to nearly 50% and were a political disaster, resulting in a strong Democratic showing in congressional elections in 1890 and in the presidential election of 1892. 

Tariffs
Details on tariffs were not forthcoming in Trump’s address and most of today’s market action, in which the US dollar sold off and risk appetite rebounded elsewhere in the world keyed off a Wall Street Journal exclusive from earlier in the day that described a Trump memo indicating no immediate tariffs. Rather, the memo directed federal agencies to study trade policies and evaluate the trade relationships with China, Canada and Mexico. It specifically asked for an investigation into persistent trade deficits, unfair trade practices and any currency manipulation and singled out the 2020 trade deal with China and the country’s lack of compliance with that deal. The USMCA that replaced the original US-Canada-Mexico NAFTA trade deal is up for review in 2026. This could yet prove fertile ground for trade war risks down the road – headline risk to continue there in other words.

The usual stuff
The market took the speech as an encouragement as the most feared scenario of immediate and large tariffs was not realized. Much of his domestic agenda was along the lines of grievance for his treatment by a politicized Department of Justice and cultural issues that won’t interest the markets much. But he pointed to a few well flagged issues like an intention to ending the Green New Deal and EV mandates, the creation of a Department of Government Efficiency, and encouraging more domestic energy production with a policy of “Drill, baby, drill!” Finally, while many have noted the risks of the mass deportations that Trump supports, also in this speech, I believe this policy will bog down and become very unpopular if it moves beyond the deportation of a few thousand high profile cases of convicted criminals.

Geopolitical points perhaps the most pointed
The aggressive geopolitical posturing is also worth considering here. Two specific areas stood out here: The Panama Canal and a new war on drug cartels. On the Panama Canal, Trump declared an intention to “take it back” because Panama violated the original intent of the transfer of the canal, as he claimed it is now being operated by China and that American ships are being overcharged for its use. The history of the transfer is that it was given to Panama in 1999 according to a deal signed in 1977. Then on drug cartels, Trump said that he would designate these cartels as foreign terrorist organizations, which can have huge implications for the US relationship with Mexico and possibly even Canada and enhances the risks of the issue getting mixed up with trade policy especially with Mexico. He also said he would invoke the Alien Enemies Act of 1798 to eliminate foreign drug gangs and cartels from US soil, which risks considerable violence and strong arm tactics on US soil and again, possible friction with foreign powers. Finally, Trump’s reference to considering the United States a “growing nation, one that increases our wealth, expands our territory…and carries our flag into new and beautiful horizons” was a more than a bit interesting. The flag bit may have been a reference in part to Mars exploration as this was mentioned specifically, but could it also be a reference to Greenland and elsewhere?

All in all, no huge surprises in this Inaugural Address from Trump – but the intentions are very clear and have enormous implications. From here, the keys will be in the scale and implementation of these policies both domestic and foreign, what shape the tariffs eventually take and how the world reacts. The US isn’t the only country with leverage.