Investors can be forgiven for having tariff whiplash, after the threat and then temporary reprieve of 25% US tariffs on Canada and Mexico, and the implementation of additional 10% tariffs on China. Paul and Luke discuss with abrdn economics experts, James McCann, Bob Gilhooly and Lizzy Galbraith, the rationale behind Donald Trump's tariff strategy, its economic and monetary impact, and Trump’s broader agenda.
Some highlights:
Easy come easy go. President Trump announced significant tariffs on imports from Canada, Mexico and China before then postponing those on Canada and Mexico following negotiations.
- Economic impact. Tariffs could lead to higher and weaker growth in the US. The Federal Reserve faces a dilemma between addressing inflation and supporting growth, especially in the context of recent high inflation. Other developed markets hit by tariffs would likely cut interest rates, while emerging market central banks may not have this luxury..
- Deglobalisation? US policy could lead to profound shifts in the pattern of global trade, with the use of executive orders and emergency powerss howing how major economic policies can be implemented without Congressional oversight.
- Trading tariffs. China retaliated with its own on US energy products and an antitrust investigation into Google. These responses were measured and targeted – reflecting the strategic nature of global trade and trade negotiations.
- Broader implications. The Trump administration’s use of executive orders and emergency powers suggests a ‘maximalist’ view of presidential power. This approach allows for rapid policy implementation but also creates legal uncertainties and the possibility of policies being subsequently overruled via legal review.
Listen to the latest episode of our Macro Bytes podcast for more.