Key Takeaways
- President Trump has announced big tariffs on US trading partners. 10% has been levied on China which is well short of the 25% announced for Canada and Mexico.
- A weaker Canadian dollar and Mexican peso will blunt the impact, but they will still likely suffer trade loss. A boost in domestic demand for both countries is likely but the net impact will be negative.
- If the tariffs go ahead both Canada and Mexico could be nudged into recession. US growth will also suffer but its economy should remain in expansion territory.
- Europe is vulnerable to future announcements, but the UK could escape lightly in relative terms.
- There will be some upward inflationary pressure for the US, but we would expect the Federal Reserve to look through the one-off effects.
- Tariffs apply to goods so service industries aren’t exposed to the same extent. We still view the US stock market as attractive.
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