Trump Tariffs

The US has just imposed 25% tariffs on Canadian and Mexican imports, effective February 4, with unspecified impositions likely to be announced for Europe and elsewhere. The weekend announcement came as no surprise. Trade was a priority for Trump’s first administration and will be for his second. An additional 10% tariff on imports from China had already been announced. Retaliations are inevitable, and already in train in Canada and Mexico.*

Trade wars are bad for the global economy and business. The scale of the bad news depends however on many factors – their coverage (imported oil at least will face lower rates); their duration (negotiations may just be beginning, while US consumers may not be happy with the higher costs imposed on essential North American imports in particular); and their incidence (a stronger dollar and flexible profit margins will see much of the impact deflected).

Overall, while the immediate effect of tariffs is to push many consumer prices up, we see the medium-term impact of such policies as deflationary: until the proceeds are spent at least, such measures reduce spending power. As in 2018, however, it is too soon to conclude that a significant economic setback is imminent.

Uncertainties around the details of the new US administration’s policies were one of the reasons that we have felt more cautious in recent months - at least from a ‘top-down’ perspective. We are of course watching developments closely, but so far, the scale of the additional tariffs on imports from China falls short of what Trump has been suggesting (which is ironic as China is the most protected of the big economies, and the main cause of Trump’s ire).

* We recently discussed Trump’s broad approach here and its implications for the dollar here.

Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.