Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
In our economic review 2 weeks ago (“It’s a shooting war”) we wrote about Donald Trump’s plan to extend tariffs on solar goods and washing machines to aluminium and steel. Last week, in a highly significant political move, he upped the ante by announcing that the US plans to levy tariffs on up to $60bn of goods exported from China.
Trump believes that targeting imports will “make us a much stronger, richer nation” and help address the US’s $375bn trade deficit with China. His justification, “we have the largest deficit of any country in the history of our world. It is out of control.”
There is no question that the US operates an unsustainable deficit. This is being reflected in currency markets where the US dollar has remained weak despite being at the forefront of raising interest rates (higher rates would normally attract capital and lead to US dollar strength).
Agitating for solutions is a tactic that Trump appears to enjoy. The traded goods sector is being arranged like pawns on a chess board. To win the game some pawns will have to be sacrificed and this desire to win and to put “America First” is the message being sent out to all of their trading partners.