Us Tariff Policies: Market Volatility And Global Impact
NorthAmerica
Markets
Since taking office, President Donald Trump has proposed several tariffs on imported products. Tariffs are taxes a government imposes on imported goods, intended to protect domestic industries by making foreign products more expensive. Historically, tariffs have influenced trade relationships significantly; for example, the Smoot-Hawley Tariff of 1930 raised duties on many imports, leading to retaliatory tariffs from other countries and worsening the Great Depression in the U.S. Chinese goods are set to face an increased 10 percent tariff, while Canada, Mexico, and the European Union are to be hit with 25 percent tariffs should the President get his way. The proposed tariffs are expected to have some significant impacts on the markets. Some of these impacts have already started manifesting in the stock markets, where Wall Street indices have dipped since President Trump confirmed the tariffs on Canadian goods. Since the announcement was made by the White House, the Nasdaq composite, S&P 500, and the Dow Jones Industrial Average have experienced a decline. Economists agree that in the short term, the tariffs will likely lead to increased consumer prices. However, to fully evaluate the impact that the tariffs are likely to have, economists need more information on the full scale of tariffs planned by the White House. Forex markets have also experienced volatility following the President’s tariffs. Predictably, the US dollar rose, while the CAD and MXN fell on concerns about slowing growth and impending recessions in Canada and Mexico. Other currencies that have been under fire are the Australian dollar and the New Zealand dollar, which are close proxies for the Chinese and global economies. The euro also fell as Trump announced duties on eurozone goods. The yen was the relative outperformer, benefiting from haven demand, coupled with the Swiss franc, which is closely linked to the eurozone. Tariffs impact exchange rates because they alter trade flows and affect currency demand. These tariffs can boost the local currency by lowering imports and boosting the trade balance. A favorable trade balance drives up demand for the home currency in overseas markets. Many economists concur that trade wars are a "lose-lose situation" for all participating nations, with neither party gaining anything. Responses to tit-for-tat policies may increase, resulting in low economic activity and sentiment. Usually, consumers will bear some of the costs associated with tariffs. This implies that vendors might increase the cost of the products they import for customers. According to some analysts, this might worsen US inflation and cause it to increase sharply. In this context, the US dollar may gain, as it did in 2018-2019. The US growth is expected to continue being better than that of key trading partners, and yield differentials will remain dollar supportive as the Fed becomes less dovish. However, an all-out and lengthy tariff war could raise concerns about the long-term consequences for US economic development and trade partnerships. Tariff-hit countries, on the other hand, are expected to have substantially slower growth and even recessions. Canada, China, and Mexico account for about half of all US imports, totalling more than $1.3 trillion. However, it is estimated that the new taxes might lower US imports by 15%. While it estimates that the tariffs will generate an additional $100 billion in federal tax revenue per year, they may also impose significant costs on the broader economy, disrupting supply chains, raising business costs, eliminating hundreds of thousands of jobs, and ultimately raising consumer prices. To mitigate the potential negative impacts of these tariffs, the US government should consider negotiating trade agreements that prioritize cooperation over conflict. This approach could help maintain strong economic ties with key trading partners and prevent retaliatory measures that could harm the US economy in the long run. Tariffs will affect Canada and Mexico significantly, as trade accounts for over 70% of both economies' GDP. The two nations are quite reliant on commerce with the US. More than 80% of Mexico's exports, including cars, machinery, fruits, vegetables, and medical equipment, are shipped north, accounting for 15% of total imports into the United States. While tariffs could lead to increased revenue generation, protection of domestic industries, job creation, and reduction of trade deficits, they could result in increased prices for consumer products, counter-tariffs from other countries, reduced choice of goods to consumers, and inefficiencies in domestic industries due to declined innovation. To prevent adverse effects of tariff imposition by the US, it must work towards a balance between the pros and cons of tariff imposition.
28 DAYS AGO