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Trump Threat of Global Trade War Haunt Investors' Waking Moments

Trump Threat of Global Trade War Haunt Investors' Waking Moments
(Dollar Photo Club)

By    |   Monday, 05 March 2018 07:35 AM

For today, there is no data of real importance.  

Politics dominate all over the place.

What could be coming in the world of global trade is the bigger risk of all, which could cause, but hopefully not, an overreaction that could develop.

Fresh from President Trump welcoming a trade war, while White House trade adviser Peter Navarro said on Sunday: “At this point in time there’s no country exclusions” didn’t certainly help." 

Nevertheless, at least so far, it is the U.S. consumers of course that are the ones who will pay the tax on steel (25 percent) and aluminum (10 percent) imports, and if it is broad-based, it may increase the visibility of that tax.

In the United States it is going to be important to consider, not the impact of the tax directly, but the visibility of the tax overall.

The Trump tax on solar panels (30 percent) was not especially visible, except for those in the U.S. solar industry whose jobs are at risk.

Individual Americans do not buy solar panels very often, and so the price of solar panels is not very visible.

Individual Americans do buy cans of beer more frequently, and so if the tax is passed on to the consumers, they may notice.

However, for the tax to be visible, it would have to be clear that the price increase for a can of beer was a direct consequence of the Trump tax and not the consequence of general inflation.

The domestic impact of the tax depends on the visibility of it, and that depends on the public relation spin of those U.S. companies that consume steel and aluminum in their products.

Over in China, today starts the 13-day event of the National People’s Congress (NPC), which is China's national legislature, that will lift the presidential term limit and should allow President Xi to remain president indefinitely.

For investors it might be noteworthy that Chinese premier Li Keqiang said today at the NPC, which is China's annual sitting of parliament, and while noting a “sharp rise in protectionism globally” that China's steel production capacity would be cut by a further 30 million tons this year after having cut 170 million tons of steel production in 2017. Li did not comment directly on President Trump's move to impose a 25 per cent tariff on steel imports.

Meanwhile in Germany, which has no term limits for its Chancellor, Chancellor Merkel, who has been in power now for 12 years, is set to form her fourth government after the opposition Social Democrats (SPD) voted in favor of another grand coalition.

This is not a huge surprise to the financial markets and German politics was not necessarily at the forefront of investors collective mind. The result removes a small amount of uncertainty that didn’t matter too much to financial markets.

Meanwhile in Italy, there is real political uncertainty. An anti-EU (European Union) coalition could seize power in Italy after exit polls indicate a surge in support for anti-establishment parties. Whatever is said, it’s a fact that there has been a dramatic increase in Euroscepticism in Italy since the 2008 financial crash.

Now, it’s a fact that political uncertainty in Italy is not perhaps a complete shock to those who invest in Italian and to a much lesser degree in European assets. Political uncertainty in Italy is not exactly unheard of.

So far, financial markets have only exit polls from the general Italian election to look at, and the exit polls were wrong by about 6 percent in the last election.

Nonetheless, it’s a fact that the exit polls suggest an increase in support for anti-establishment parties on both the left and the right.

The financial markets’ favored outcome, on the basis of the imperfect information that is available at the moment is of course a “grand coalition” of the establishment parties.

As always, financial markets will have to wait for the proper result, which may well change the balance of power in Italy. And then, the financial markets will have to wait for the result of coalition negotiations, which will not be a quick process.

However, as domestic investors tend to dominate Italian financial markets, therefore an overreaction in Italian financial markets is not especially likely.

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

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What could be coming in the world of global trade is the bigger risk of all, which could cause, but hopefully not, an overreaction that could develop.
trump, trade, war, investors
Monday, 05 March 2018 07:35 AM
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