As of this writing, there have been over 80 executive orders issued by President Trump since January 20th. They have covered everything from diversity and inclusion initiatives (DEI) policies to border security and trade policies. For investors, some of these policies are symbolic vs. impactful. For example, renaming the Gulf of Mexico to the Gulf of America is unlikely to shift the economy or markets. 

Still, the sheer number of orders has made it difficult to follow. So we spent some time breaking down what we see as the key orders—and what they could mean for markets.

Orders for artificial intelligence and crypto: Strengthening American Leadership in Digital Financial Technology and Removing Barriers to American Leadership in Artificial Intelligence

• These focus on expanding the role of digital assets and blockchain technology, outlining policies to support their growth and adoption. They signal a friendlier stance toward crypto and blockchain innovation at the federal level.

• Included is the development of an "AI Action Plan" aimed at securing U.S. “dominance” in artificial intelligence. The plan is expected to focus on economic competitiveness, national security, and ensuring AI remains free from ideological bias. While this could provide a tailwind for AI-focused companies, it also raises questions about future regulations and oversight in the sector.

Hiring freeze and a shrinking federal workforce: Hiring Freeze

• Following this order, a federal hiring freeze was put in place across all civilian agencies, preventing new hires and blocking agencies from circumventing the freeze through contracting. The order remains in effect until the Office of Management and Budget (OMB) and the Office of Personnel Management (OPM) submit a plan to reduce the size of the federal workforce, which is due by April 20, 2025, except at the IRS.

• While the intent is to cut government spending, which does need to happen, it’s worth noting a few things:

  • The number of federal employees has remained fairly stable over time and they make up a small proportion of overall government employees in the US, while over 63% are local government employees. 

  • In fiscal year 2022, the federal government spent roughly $271 billion to compensate civilian employees. Relative to our $2 trillion deficit, it won’t make enough of a dent, unfortunately.

National energy emergency and a shift back to fossil fuels: Unleashing American Energy, Declaring a National Energy Emergency, and Unleashing Alaska’s Extraordinary Resource Potential

Another set of orders removes regulations that limit US energy production, aimed at lowering costs and strengthening national security. This policy promotes domestic oil, gas, coal, and rare earth mineral development while rolling back previous government support for electric vehicles (EVs) and clean energy orders.

The administration is clearly shifting focus back to traditional energy sources, which could be a tailwind for fossil fuel companies but a setback for renewable energy and EV manufacturers. It has been speculated this policy won’t hurt Tesla, out of all the EV car makers, thanks to their profitability relative to other EV producers. The order also streamlines permitting for pipelines and mining projects, potentially boosting domestic energy production in the short term. 

Tariffs on a country like Canada, where most of our imported oil originates, might be part of the plan to use more of what we produce, reducing imports. And speaking of tariffs… 

New tariffs: Imposing Duties to Address the Flow of Illicit Drugs Across our Northern Border, Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China, and Imposing Duties to Address the Situation at Our Southern Border

One of the biggest developments for markets is the potential introduction of new tariffs—a 25% tariff on imports from Mexico and Canada (except 10% on oil imports) and a 10% tariff on imports from China. These 3 countries are among the top 5 US trading partners. 

Based on public data, Mexico sent 80% of its exports to the US, while Canada sent 76%. By contrast, only 23% of US exports went to Canada and Mexico combined. This imbalance suggests that Mexico and Canada have more to lose in a trade dispute—but that doesn’t mean some US industries won’t be impacted.

This was evident in the market’s initial reaction to the news on Monday, but US auto manufacturers are exposed, given their heavy reliance on Mexican and Canadian supply chains. Other industries that depend on imported raw materials could also see increased costs. While the administration delayed tariffs against Mexico and Canada by a month, it’s unclear whether or not this is a temporary move.

Why tariffs matter As a short example to understand the potential impact, tariffs essentially act as a tax on importers. Say you own a business that imports shoes from Europe. If a 20% tariff is imposed on imports from Europe, you, as the business owner, have to pay 20% more for those sneakers. To cover the higher cost, you might raise the prices you sell those shoes for. This is why tariffs are often called out as potentially inflationary and could hurt businesses. 

Now, if inflation expectations rise, interest rates tend to as well. This can also lead to a stronger US dollar, relative to other currencies, potentially dragging down revenues for US companies with global businesses. In short, tariffs can slow an economy.

What this means for investors Two takeaways:

1. Know the businesses of the companies you’re invested in, including where in the world they do business, their currency exposures, and how reliant they are on imports by the nature of their business.

2. Expect greater swings in volatility. Technically called the volatility of volatility (VVIX Index per CBOE), this measures the changes in levels of the VIX (which, in turn, measures 30-day expected volatility). It’s been on the rise and I expect it to stay elevated.

   

3. Diversification can be key. A bit more diversity in a portfolio can help cushion the impact of unpredictable policies, allowing you to stay positioned for both risks and opportunities.

While the headlines may change, stay informed, stay flexible, and don’t put all your (now expensive) eggs in one basket.

Sources: International Merchandise Trade Statistics of Mexico (BCMM), US Census Bureau, Statistics Canada