Trump Delivers.
These tariffs are framed as punishment for supplying fentanyl to the US market and for not preventing illegal immigrants.
They do not specifically address the economic goals of the President (external US deficits etc). Tariffs to address economic issues can be expecterd later. Europe and EMs will not be exempt then, though they are ommitted today..
My two reports - ‘The McKinley Factor’ (01/26) and ‘Astern’ (01/08) make the case that for the President Trump 2 Administration.::
1. Tariffs can be used to achieve political or economic goals. Politically they can be used to address almost any issue.
2. Tariffs also lie at the core of economic policies. . They are not a momentary negotiating tool. Tariffs have to produce their targeted economic effects (and not just statements of good intent) before they are lifted.
“Economic” tariffs can be expected later. . Today’s tariffs are about political goals:drugs and immigration.
The results are likely to be lower growth and higher inflation in the US and a reversal of Fed Policy down the road. Retaliation by trading partners will be magnify these effects, not only for the US, but for Europe and Asia too.
The tariffs declared today darken the picture for economies with already fragile performance such as China. They are disastrous news for Mecico and Canada (where depending on exemptions) they could cause recession. Canada’s energy exports, if not exempted, still account for 24% of US refinery crude inputs so inflationary effects for the US would not have to wait there! But we await specifics.
All of this is inherent in my forecast of a bear market in most financial assets this year.
As markets were living in hope that President Trump had gone soft on tariffs and they were just a negotiating tool, expect falls in equities and bonds on Monday. The USD should stregthen theoretically as a result of the tariffs imposed today, though as explained in the “McKinley factor”, the downside risks to the USD will rise down the road as the concept of US exceptionalism fades. I have started to reduce my long USD positions as well as longs in US equities. I continue to hold 2yr Teasuries.
Best d