Are you sure?

Not enough US voters asked themselves that question on November 5, 2024, when America decided to give Donald Trump a presidential do-over.

Fast forward seven or so months and chaos reigns. Equities are supposed to hate uncertainty, so we should count ourselves lucky the S&P’s more or less back to record highs. Global stocks are at records, having recouped the entirety of losses suffered in the wake of “Liberation Day,” which has a solid claim on being Trump’s second-worst-ever idea (never say never, but bleach injections are unlikely to be dethroned at the top of that particular list).

Some of the turmoil surrounding the Trump administration’s irrelevant for equities, or at least in the near-term. The reason stocks took it on the chin following Trump’s April 2 tariff unveil is that investors could draw a straight line from draconian trade levies to corporate profits.

I’m no fan of shareholder capitalism in its extreme form (i.e., the form it takes in America), but a lot of people are, and some of those people are Trump voters. While it’s occurred to everyone by now that tariffs and de-globalization will mean lower profit margins, I’m not sure most casual observers understand just how instrumental the dynamics Trump blames for all of America’s ills really are when it comes to driving shareholder returns.

The figure below, from a sweeping, 71-page SocGen report released this month, illustrates the point rather poignantly.

Expressed as a share of revenue, COGS have fallen nearly 7ppt since China’s WTO accession. That’s an enormous boon to profitability.

“US companies have clearly benefitted from globalization,” SocGen remarked, editorializing around the chart and adding that the trend’s “also visible across sectors.” Indeed, eight of 11 sectors saw their COGS fall as a share of sales over that period.

So, again, are you sure you want this? I suppose I shouldn’t pose it as a question. After all, the die’s cast.