Tags: tariffs | trade | equity | markets | economies | investors

Trade Tariffs Hurt Financial Markets Much More Than National Economies

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Tuesday, 08 January 2019 08:32 AM Current | Bio | Archive

The U.S. shutdown continues and is heading into Day 18.

The White House said millions of U.S. taxpayers will still receive refunds despite the ongoing partial government shutdown.

Today's international trade report, like yesterday's report on factory orders, have both been delayed.

One part of the government that does appear to be functioning is the part that deals with trade negotiations. U.S. Secretary of Commerce Wilbur Ross said that the U.S. government is optimistic that a deal can be done with China over trade. Negotiations are ongoing in Beijing today.

It seems unlikely that there will be a significant rolling back of existing trade tariffs, the only thing that is possible, but anything which gives security that additional trade tariffs can be avoided will probably be welcomed by investors. 

Putting tariffs on trade hurts equity markets far more than it hurts economies, although investors might need a little more than sound bites from the media to be entirely convinced that U.S. consumers are safe from the threat of yet more tariffs. 

Any trade deal is unlikely to change that much in terms of how trade is actually conducted. It’s more likely to be a “tweetabale” moment rather than a substantial change of policy direction, but of course the U.S. trade deficit is likely to continue to grow as a direct consequence of the current U.S. policies.

Atlanta Fed President Bostic on Rates, Trade and Brexit

The Wall Street Journal reported that Atlanta Fed President Bostic said yesterday the Fed should raise interest rates just once this year, and while he didn’t say when, he added that he would keep an open mind about whether more or fewer moves might be needed.

Mr. Bostic also said the U.S. economy is in “pretty good” shape, but there is enough uncertainty that the Fed should carefully monitor economic data and be prepared to react and added he was paying attention to clouds hovering over the economy, including financial-market volatility, trade tensions and the partial federal government shutdown.

Interestingly, Mr. Bostic also said if there are positive developments for the economy, such as a conclusion of trade talks between the U.S. and China, two rate increases could be warranted this year.

On the contrary, bad news, such as a “no-deal” or a “hard Brexit” between the U.K. and the European Union, could remove the need for any rate increase at all in 2019.

Finally, Mr. Bostic said he views that range as the lower end of a so-called neutral setting that would neither stimulate nor slow U.S. economic growth to lie somewhere between 2.5 percent and 3.25 percent.

Brexit

In the interminable tedious process of getting the UK for leaving the European Union, UK Prime Minister May is apparently contemplating an attempt to make a no deal exit a lot more difficult to achieve.

At the moment, the UK’s “Law of the Land”, refers to all of the laws in force within the UK and that says that the UK “must leave” without a deal on March 29. To do anything else, would be illegal. To change the law would require an Act of Parliament passed by the House of Commons, the House of Lords and with her Majesty’s graciously giving Assent.

If Parliament cannot agree on a negotiated exit before March 29, a no-deal exit could only be stopped by a new act of Parliament plus, either the European Union agreeing to extend the deadline or the UK government, not the UK Parliament, withdrawing Article 50.

Of course, a reduced risk of a no-deal exit would be welcomed by investors. Prolonged uncertainty about what happens next would probably be less welcome. 

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
 

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HansParisis
Putting tariffs on trade hurts equity markets far more than it hurts economies, although investors might need a little more than sound bites from the media to be entirely convinced that U.S. consumers are safe from the threat of yet more tariffs. 
tariffs, trade, equity, markets, economies, investors
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2019-32-08
Tuesday, 08 January 2019 08:32 AM
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