Markets need to begin thinking about the structural impact of Donald Trump’s proposed
10% tariff increase, which “shakes up every asset class,” according to Michael
Every, global strategist at Rabobank.
The former president, and overwhelming favorite to secure the
Republican nomination for the 2024 race, plans to impose a 10% tariff on all
imported goods, trebling the government’s intake and aiming to incentivize
American domestic production.
Treasury Secretary
Janet Yellen said earlier this month that the plan would “raise
the cost of a wide variety of goods that American businesses and consumers rely
on,” though she noted that tariffs are appropriate “in some cases.”
Criticism of the policy has been relatively bipartisan. The Tax Foundation think tank highlights that
such a tariff would effectively raise taxes on U.S. consumers by more than $300
billion a year, along with triggering retaliatory tax increases by
international trade partners on U.S. exports.
The center-right American Action Forum estimated,
based on the assumption that trading partners would retaliate, that the policy
would result in a 0.31% ($62 billion) decrease to U.S. GDP, making consumers
worse off and decreasing U.S. welfare by $123.3 billion.
After Republican
rival Ron DeSantis ended his bid for the GOP nomination, Every told
CNBC’s “Street Signs Asia” on
Monday that markets were “not going to be caught napping” by a potential Trump
presidency, as they were in 2016. He suggested one of investors’ top concerns would
be the 10% tariff on all U.S. imports.
“First of all, they can’t model that because they don’t really
understand what the second and third order effects are, and more importantly,
they don’t grasp that Trump isn’t talking about a 10% tariff just because it’s
a 10% tariff,” Every said.
“He’s talking about
structurally breaking the global system by hook or by crook to basically
reindustrialize the U.S. in a neo-Hamiltonian manner which is how the U.S.
originally industrialized, putting up a barrier between it and the rest of the
world so it’s cheap to produce in America and more expensive to produce
everywhere else if you’re importing into America.”
A second Trump term
Every added that a return to this type of trade policy “shakes up
every asset class — equities, FX, bonds, you name it — everything gets put in a
box and shaken around, so that’s what markets should start thinking about.”
In the American Action Forum’s November report, data and policy
analyst Tom Lee concluded that in the most likely scenario that trading
partners impose retaliatory tariffs, a new 10% duty on all goods imported to
the U.S. would “distort global trade, discourage economic activity, and have
broad negative consequences for the U.S. economy.”
Trump floated the 10% tariff during an interview
last year with Fox Business’ Larry Kudlow, his former White House economic
advisor, saying “it’s a massive amount of money.”
“It’s not going to stop business because it’s not that much,” he
claimed, “but it’s enough that we really make a lot of money.”
During his first term in office, Trump triggered a trade war with
China by unilaterally slapping $250 billion worth of tariffs on goods imported
from China, which the AAF estimated have cost Americans an extra $195 billion
since 2018.
China responded with its own tariffs on U.S. goods, and Trump also
imposed tariffs on steel and aluminum imports from most countries, including
many of Washington’s biggest allies.
Keen to maintain a firm stance on Beijing, President Joe Biden’s
administration has largely kept these tariffs in place, though converted some
of the metal tariffs into tariff-rate quotas, which allow a lower tariff rate
on particular product imports within a specified quantity.
Dan Boardman-Weston, CEO of BRI Wealth Management, said the
macroeconomic and geopolitical landscape is now very different and more
challenging than when Trump’s first term began in 2017, and added that his
erratic approach to policy decisions would add to the kind of uncertainty that
markets most dislike.
“In 2017, markets really appreciated the Trump presidency because
of all the tax cuts and deregulation, and there was a more conducive market
environment I think back then, with where rates were, for markets to move
higher,” he told CNBC’s “Squawk
Box Europe” on Monday.
“I think this time is going to be very different, and I do think
the geopolitical risks across the world are rising, and this doesn’t seem to be
on investors’ radars as of yet.”
He noted Trump’s tendency to “change his mind” so frequently on
geopolitical issues that “people won’t know where his thinking is at.”
Trump has claimed that he would stop
Ukraine’s war with Russia within 24 hours, but has been economical
with details of his supposed peace plan, and throughout his political career
has lavished praise on Russian President Vladimir Putin.
He was also impeached by the U.S. House of Representatives for
allegedly threatening to withhold U.S. military aid to Ukraine unless President
Volodymyr Zelenskyy sanctioned a politically motivated investigation into his
then-leading electoral challenger Biden. Trump was acquitted by the Senate.
“That unpredictable approach to how he will approach the
war in Ukraine or how he will approach relations with China and
Taiwan I think lead to heightened risks from a geopolitical perspective, which
I think will impact into market valuations,” Boardman-Weston said.
“It’s that added element of uncertainty in an already very uncertain
world.”
CNBC