US decided to imposed tariffs of 25% and 10% on selected steel and aluminium imports, respectively. Importantly, Canada and Mexico were excluded. This is notable as 23.7% of steel imports and 41.5% of aluminium imports come from Canada and Mexico. The tariffs will take effect in about 15 days. Trump administration’s strategies are likely (1) a midterm election strategy, (2) a trade negotiation ploy, and (3) a way to reduce the US trade deficit (reduce imports and increase domestic production).

We believe that this will likely have very little effect on global economic outlook and equity markets at this moment. However, risks remain that Trump will pursue more aggressive global trade policies, where China accounts for more than 1/3 of US consumer products import (Figure 1), which will ultimately pose a much greater risk to the world.

On the other hand, trade fictions have historically moved forex markets in initial stage (Figure 2). We thus believe that funds that invest in oversea markets will experience higher volatility from currency factor.

Figure 1: More than 1/3 of US consumer products are from China

From Bloomberg


Figure 2: Historic tariff events and Forex reactions

Source: Bloomberg


Figure 3: Chronicle of Trade War

US: 8 March: “A strong steel and aluminum industry are vital to our national security…Steel is steel. You don’t have steel, you don’t have a country.” (President Trump, FT)

*** 8 March: Trump formally adopts new tariffs on steel and aluminum imports ***

Steel tariffs 25%, aluminum 10%. Canada and Mexico exempt for now.

ECB Draghi: 8 March: “There is a worry or concern about the state of international relations, because if you put tariffs against your allies, one wonders who the enemies are.” (ECB Press Conference)

China: 7 March: “China would have to make a justified and necessary response.” (Foreign minister Wang Yi, CNBC)

US: 6 March: “They [EU] make it almost impossible for the United States to do business with them. And yet they send their cars and everything else.” (President Trump, FT)

EU: 6 March: “[The] European Commission has proposed retaliatory tariffs on imports of U.S. steel, apparel, textile and footwear, selected industrial goods.” (Bloomberg)

US, 5 March: “No, we’re not backing down.” (Pres. Trump in response to Ryan, CNN)

US: 5 March: “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan.” (Spokesman for House Speaker Ryan, CNN)

US, 5 March: “We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for [the] U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.” (President Trump, Twitter)

EU: 5 March: “It is important in this context that the European Union reacts swiftly and proportionately within the WTO and in respect of the WTO.” (President Macron, Reuters)

China, 4 March: “China does not want a trade war with the US but if the US takes actions that hurt China’s interests then China will not sit idly and take necessary measures.” (Zhang Yesui, spokesman China parliament)