President Trump has imposed a 25% duty on steel imports and 10% on aluminium imports into the USA.
Canada and Mexico have been given a temporary reprieve, with the threat of an equivalent tariff becoming the proverbial sword of Damocles hanging over future NAFTA renegotiation talks.
Calls for further tariffs have come from an unlikely source – billionaire Elon Musk. The Tesla boss has complained in a tweet, that China imposes an import duty of 25% on vehicles from the USA, 10 times what the USA levies on Chinese imports.
Trump has expressed interest in charging reciprocal duties. The EU has taken a dim view of the tariffs. European Central Bank governor Mario Draghi, said in a speech on 8th March, that “Whilst the metals tariffs themselves are unlikely to have much impact, the risk of an escalating trade war is much more serious”. This could impact consumer confidence.
Frictions to global trade could dent volumes and in turn global GDP growth rates’. Tariffs will increase the cost of goods for US manufacturers, either directly (on imported raw materials), or indirectly (by causing substitution to domestic suppliers, which would otherwise be more expensive than tariff-free imports).
Passing through these costs via price hikes will add to inflationary pressures in the US and could predicate a steeper trajectory for interest rate rises from the Federal Reserve.
We maintain a cautious outlook on bonds and prefer shares in companies with some measure of inflation protection.
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