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.
Outlook
We maintain a cautious outlook on bonds and prefer shares in companies with some measure of inflation protection.
Risk Disclaimer: The value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance. This document is not intended as investment advice. Any security mentioned in this commentary is for information purposes only and is not a recommendation to buy. Wealth Matters is 4 Shires opinion led commentary. The contents of this webpage are for general information only and do not constitute investment or financial advice. This is not a recommendation to buy or sell any security or to take any action.
