Tariffs: Making the U.S. Exceptional, but Not in a Good Way (Ben Inker and John Pease)

GMO argues that the uncertainty surrounding US trade policy is more economically damaging than the tariffs themselves. Because corporations must make long-term capital commitments, persistent policy ambiguity suppresses investment and lowers expected returns on existing capital — a drag that lingers well after any specific tariff is announced. The firm uses copper tariffs as a case study: a large import tariff raises costs immediately for US copper consumers (who use twice what the US imports) while delivering uncertain incentives to mine developers who cannot rely on the policy lasting long enough to justify a decade-long investment. On currencies, GMO estimates a universal 25% US tariff would strengthen the dollar by roughly 8% on a trade-weighted basis in the absence of retaliation, falling to around 4% if trading partners retaliate. The Mexican peso and Vietnamese dong face the sharpest pressure given their trade-surplus exposure to the US. Taiwan is a notable exception: because semiconductors account for 60% of Taiwan's exports and are nearly irreplaceable, tariffs there would fall almost entirely on US consumers rather than moving the exchange rate. For equities, GMO identifies oligopolistic companies — specifically naming Apple — as particularly vulnerable because their excess profits will face a prolonged hit without triggering the competitive exits that would otherwise restore margins. On credit, the firm states plainly that US high yield spreads at the 15th percentile do not compensate for rising bankruptcy risk, and recommends avoiding the asset class. GMO's Asset Allocation strategies outperformed in Q1 2025, which the firm attributes to valuation-sensitive positioning rather than deliberate tariff hedging.