Daily update
Daily update
- US President Trump lashed out in several directions yesterday, suspending military aid to Ukraine and aggressively taxing US consumers of imports from Canada, China, and Mexico. Although Trump inherited a strong economy, these moves increase US recession risks. The Ukraine decision has economic consequences. It may increase international hostility to Russia and the US, affecting sanction resolve and trade negotiations.
- The trade taxes are direct attacks on US living standards. These costs will be quickly visible to US consumers, applying to high frequency purchases like food and fuel. Complex supply chains like the auto sector will be damaged if every cross-border trade is taxed. Even if short-lived, these measures cause economic damage; consumers become more aware of how tariffs work, and business uncertainty increases.
- Second-round effects could do additional damage. US companies may raise prices under cover of tariffs, if they choose profit margin over market share. Profit-led inflation is also possible amongst retailers, as consumers mistakenly think a 25% trade tax justifies a 25% consumer price increase.
- China and Canada are taxing their consumers with retaliatory tariffs. Non-tariff responses may be more concerning. Ontario’s premier has suggested banning energy sales to the US. As the pandemic demonstrated, stopping the supply of basic materials would risk wider US economic damage.