T for Trump – T for Tax – T for Trade war
That is a completely Trumpness!
Global markets are under threat after last week’s declaration from President Trump saying that; “trade wars are good and easy to win”. Thursday the 1st of March President Trump proposed a 25% import tax on steel and aluminum. Traders around the world were caught in a surprise sell off in global markets, as the threat of a global trade war may affect global growth. The idea behind the tax is to force Americans to buy domestic products instead of imported and this will result to a domestic growth of local manufactures. But will this be true? It might look good but if we dig deeper we can see that Mr. Trump is digging his own grave. A 25% tax on steel and aluminum will indirectly hurt the local manufactures and especially the construction industry. The U.S. is producing only 70% of the total steel, iron and aluminum used for all domestic production of goods, meaning that the rest of the 30% of the local needs will be taxable and this will have an impact on prices of all goods produced local. As the tax directly hurts the car industry in Europe, the trade war idea was immediately spread to Europe and the response was exactly as it was expected to be. Europe as from Wednesday the 7th introduced a tax to many US products like peanut butter, jeans, and whisky, leaving the door open for further increases on tax and the precedent for taxation on many other US products.
The turbulence in global markets continue into the early hours of Wednesday the 7th when news crossed the wire, Gary D Cohn, Trump’s top economic adviser resigned due to their differing opinion on the new steel tax. Mr. Cohn was a democrat and a fan of free trade, the decision of President Trump was against his principles, his resignation now is giving more power to the rest of Trump’s advisers who are mainly protectionist and will favor more aggressive taxes.
Markets are expected to be more volatile in every declaration from both US and European officials. High volatility in Equity markets is translated into uncertainty and sell off behavior. Such behavior will obviously push investors and traders into safe haven assets like Gold, JPY and CHF. Result will be obvious, higher gold prices, stronger JPY and stronger CHF.