As this realisation spread and data confirmed some upside inflation risks, markets buckled with a surge in volatility. This prompted further analysis from some of those previously enthused by President Trump’s economic policy agenda.
To be sure, this is still playing out with the tax cuts only just implemented and the infrastructure program yet to be formalised. But little did the market realise that the Trump policy Kool aid was only just starting to flow. With minimal consultation with advisors and no substance to frame how it would work, last week Trump announced the imposition of tariffs on steel and aluminium imports into the US.Markets were jolted and the incredulity quickly intensified when in the wake of the steel and aluminium announcement, Trump tweeted, “trade wars are good, and easy to win”.
Australia’s Trade Minister, Steve Ciobo, was at the forefront of the comments when he said that, “over time, if it [the trade war] got bad enough, we could see, for example, a recession – and we know the consequent impact of that.”
Over the weekend, Trump who was clearly energised by the prospect of a trade war and presumably having considered the number of European badged cars driving on the roads in the US tweeted, “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US They make it impossible for our cars (and more) to sell there. Big trade imbalance!” The markets have not yet been able to react fully to these threats. Over the next few days, they will be able to react to the potential implications of a broad-based hike in US tariffs and the obvious retaliation from other countries to the impact of those tariffs on their economies.
Should Australia put a tariff computers made in the US? US manufactured aircraft? I’m sure Qantas and Virgin would not be pleased. Pharmaceuticals and medical equipment?
Clearly the answer is no.
But if Trump’s trade war come to pass and as appears possible, if it escalates to a range of other products and to the countries, the fall out will be ugly.
It depends on how wide the tariff barriers turn out to be, the extent of retaliation from other countries and how companies impacted negatively from the tariff increases perform. Some may be at risk of going bust. If this turns out to be the effect of Trump’s trade war, those who lose their jobs and have their wealth destroyed will have Trump to thank.