Tags: trump | trade | tariffs | china

Investors Ignore Trump's 'Art of Deal' Tariff Tactics for Now

pair of businessmen shaking hands with an american flag and money falling down around them
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Tuesday, 27 November 2018 09:41 AM Current | Bio | Archive

President Donald Trump on Monday told The Wall Street Journal he is likely to go ahead on January 1, with a hike on tariffs currently imposed on Chinese goods.

The tariffs would be raised from 10 percent to 25 percent on $200 billion worth of goods.

He also told the Journal he would hit the rest of China's imports to the U.S. with tariffs if talks in Buenos Aires at the end of the week on the sidelines of the G-20 meeting did not go well. Trump told WSJ.com that it was “highly unlikely” that he would agree to Beijing's request to hold off on the planned tariffs’ rise.

The president also said tariffs could also be placed on Apple iPhones and laptop computers imported from China if the U.S. decides to put tariffs on additional goods.

Financial markets don't appear to be giving Trump’s remarks too much attention at the moment, presumably considering his comments as “art of the deal” negotiation tactics.

For investors, it’s important to keep in mind that if they were to go ahead, tariff increases on such a scale would reduce, albeit limited, U.S. growth and could provoke serious damage to U.S. equities, as the amount of trade “taxed” by tariffs could become larger and larger, and if so, it would become harder and harder to avoid the economic effects of the tariff increases.

Earlier tariff increases against China specifically have been evaded, at least in part, through changing supply chains and outsourcing work from the United States to other countries.

Trump Warns Brexit Deal Could Threaten Future US-UK Trade Deal

Trump has also commented on the interminably tedious process of separating the UK and the European Union (EU), suggesting that the proposed separation would hinder prospects of a U.S.–UK trade deal.

Such a deal would be years in the making and in all likelihood would not be completed under the Trump presidency.

Some commentators have suggested that the intervention may hurt the somewhat “poor” prospects of the UK Parliament agreeing to the separation deal when it votes in a couple of weeks.

Trump’s comments prompted the British pound to fall against both the U.S. dollar and the euro. Against the dollar, sterling slipped about 0.5 percent to $1.2736, falling its lowest level in almost two weeks.

ECB President Draghi Confirms that QE will End This Year

ECB President Mario Draghi has made it clear that the European Central Bank (ECB) bond buying program will come to an end at the conclusion of this year, although the ECB will still buy bonds as it reinvests maturing debt and coupon payments.

The ECB president had a relatively healthy regard for noise of the recent sentiment surveys on the Eurozone economic performance, preferring instead to concentrate on what is actually happening in the real economy.

One could say better late than never from an economic point of view.

Lower Oil Prices and Their Impact

Oil prices have remained low with Brent crude trading at close to $60 a barrel and WTO crude oil a little above the $50 a barrel.

This does have economic consequences. A lower oil price will have a disproportionate impact on inflation expectations, particularly in countries like the United States that taxes oil quite lightly at a consumer level.

However, it is not crude oil but gasoline that has the impact because it is the item that consumers buy frequently. These prices have not fallen as much as the crude oil prices so far.

Nonetheless, this time of the year is a critical period for wage and price settings, in the United States in particular.

So, the effect is worth monitoring.

More immediately, low oil prices will affect capital flows. They represent reduced flows of money to oil producers and in the case of OPEC, some oil producers may be obliged to sell assets to finance domestic spending.

As assets held by the Gulf oil states are disproportionally dollar based, this capital flow may then have a foreign exchange bearing if it goes on for long enough. Of course, we aren’t there yet.

Recent media reports of Saudi private money leaving the country do not change the “net” flow of money, but it may change the asset composition of that flow.

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

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Financial markets do not appear to be giving President Trump’s remarks too much attention at the moment, presumably considering his comments as “art of the deal” negotiation tactics.
trump, trade, tariffs, china
Tuesday, 27 November 2018 09:41 AM
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