Make Volatility Great Again
Trump has kicked off a potential tariff war, but the only real certainty is more volatility.
The headline risk is extremely high right now. Twice in the past two weeks we saw “leaks” to the press that perhaps the Trump Team was going shift tactics on the tariff file, but that was not meant to be. The President is indeed going ahead with his pledged 25% tariff hike on Canada (on everything except for oil, but this industry wasn’t totally spared either, as it now confronts a 10% tariff) and Mexico. China faces a 10% tariff as well and President Trump now says that Europe is next on his list, and cited computer chips, pharmaceuticals, steel, aluminum, copper, oil, and gas imports as the major items to be targeted as soon as mid-February.
This is history in the making because there is little doubt in my mind that we are now on the precipice of a global trade war. While it is true that the U.S. only ships 1% of its GDP to Canada while Canada sends over 20% of its economy south of the border, this does not mean that the U.S. economy will not be adversely affected, especially in the goods sector. Donald Trump seems to think that external producers will eat all of the tariffs and that revenues from the trade action will help pay for his bold domestic fiscal initiatives, but that is just an assumption. He has another assumption which he stated verbally on Friday, which is that insofar as American consumers bear the brunt of any pain, they will be forgiving, and the pain will be short-lived. Assumptions all around.
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