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UK market commentary from deVere Group.
Trump’s proposed tariffs on dozens of trading partners risk
backfiring on the US economy at a time of rising geopolitical
tensions, persistent inflation pressures, and slowing growth, warns
Nigel Green, CEO of
deVere Group.
The warning comes after the administration proposed tariffs of 10%
to 12.5% on imports from dozens of economies, including some of
America’s largest trading partners.
Unlike earlier tariff campaigns, which were largely focused on
China, the latest measures reach much deeper into trading
relationships that underpin vast sections of the US economy.
“The first tariff battles were sold as a strategic confrontation
with China,” says Nigel Green.
“This proposal reaches across allies and major trading partners that
are deeply integrated into the US economy. That’s why the risk of
economic blowback is materially greater.
“The wider the net is cast, the greater the risk that the economic
damage comes home.”
The economies affected collectively account for trillions of dollars
in annual trade with the United States.
Canada and Mexico together account for more than a quarter of total
US goods trade, while the European Union remains one of America’s
largest export markets and a critical source of machinery,
industrial goods, pharmaceuticals and components.
“US companies rely heavily on imports, components, machinery,
industrial inputs and finished goods from many of the economies now
facing tariffs,” says Nigel Green.
“A larger share of the cost is therefore likely to land on American
businesses themselves.”
The deVere CEO argues that the timing makes the risks even greater.
“The global economy is already dealing with multiple sources of
pressure.
“Energy markets remain vulnerable to geopolitical tensions involving
Iran and the wider Middle East. Oil prices have become increasingly
sensitive to developments in the region, creating renewed inflation
risks.
“Inflation pressures have proven more persistent than many expected,
while businesses and households continue to face elevated costs
across financing, energy, insurance and labour.
“Against that backdrop, imposing broad new tariffs risks adding
another layer of pressure onto companies and consumers.”
The warning follows proposals from the US Trade Representative to
impose tariffs of at least 10% on imports from a broad range of
trading partners following an investigation into forced labour
practices, while a separate group of countries would face duties of
12.5%.
The deVere CEO says many investors are overlooking how different the
economic backdrop is compared with previous tariff disputes.
“Businesses have already spent years restructuring supply chains,
diversifying suppliers and relocating production in response to
earlier rounds of tariffs.
“The easiest adjustments have already been made. Further changes
become progressively more expensive, more complex and less
efficient.”
He believes many companies now face a more difficult environment in
which to absorb additional costs.
“If energy prices move higher because of conflict involving Iran and
tariffs simultaneously increase the cost of imported goods and
industrial inputs, American companies face a double squeeze.
“Margins come under pressure at the same time as consumers become
more sensitive to higher prices.”
The implications extend beyond individual sectors.
He warns that businesses dependent on imported inputs, industrial
supply chains, manufacturing components and cross-border trade could
face the greatest pressure if the measures move forward, while
renewed inflation risks could complicate the outlook for both
equities and bonds.
The tariff proposals also arrive as the administration pursues a
separate investigation into excess manufacturing capacity involving
a number of major economies, raising the prospect of additional
trade measures in strategically important sectors.
Investors should focus on the cumulative effect.
“Markets often focus on who is being targeted by tariffs.
“The more important question is who ultimately pays.
“History shows that a significant share of the burden frequently
falls on domestic businesses and consumers.”
He concludes: “Washington is presenting these measures as a way to
strengthen America’s economic position. But are they really?
“Previous trade battles were more concentrated. This one is broader,
arrives at a more challenging economic moment, and touches more of
the day-to-day operations of American companies.
“Investors shouldn’t assume this is a replay of previous tariff
disputes. The target list is broader, the economic backdrop is more
challenging and the potential consequences for US businesses are far
greater.
“That’s why the risk of this becoming a serious self-inflicted wound
is greater than before.”
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