Is Trump just getting started on trade protectionism?

Thought of the day

by Chief Investment Office 23 Jan 2018

The US president's decision to impose steep tariffs on imported solar panels and washing machines could be seen as the opening move in an effort to defend US industry against foreign competition, raising the risk that a global trade conflict will hamper international growth. South Korean officials have already said they will consider reinstating levies on imported American products in retaliation.

For now, we don’t believe President Trump’s move to impose tariffs marks the start of a trade war:

  • So far, the measures taken by Trump are not hugely out of line with steps taken by previous presidents. Barack Obama and George W. Bush both invoked safeguards to protect US industry from "serious injury," imposing tariffs on Chinese tires of 35% and on imported steel of up to 30%, respectively.
  • The decision falls short of some of Trump's campaign threats to impose across-the-board tariffs of up to 45% on Chinese imports and 35% on Mexican imports.
  • Rather than across-the-board measures, thus far, the tariffs appear targeted to benefit specific US industry groups. The coal industry, for example, should benefit from solar panel tariffs in addition to US panel producers. It's no surprise that the Trump administration is looking to please special interest groups in a mid-term election year.

So while we are monitoring signs that tariffs are extended (onto steel and aluminum, for example), and are watching this week's NAFTA negotiations., we stay risk-on, and overweight global equities. However, should trade disputes intensify, open and export-oriented economies would suffer most. We are underweight Malaysian and Taiwanese stocks within Asia.

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