EMCR experts

EMCR experts

DB об объявленных тарифах. Сильнейший торговый шок со времен коллапса бреттонвудской системы. If these tariffs go ahead, we see them as constituting the largest shock in global trade policy since the collapse of Breton Woods. We see immediate recessionary…

Continued:

· Attempts to block President Trump's tariffs in US courts. Given the highly expansive use of presidential authority under the IEEPA, impacted parties are highly likely to seek an immediate temporary injunction, similar to the restraining order on federal spending last week. The use of National Emergency powers has not been tested in this way before, so it is highly uncertain what the court reaction might be. The next few days will be a major test of presidential power and potentially cause additional market volatility. Still, even if an injunction is granted, President Trump also holds authority to impose tariffs over multiple other executive avenues, as per our analysis of the trade memo that was released on the first day of the Administration.

· The response from affected countries and "tit-for-tat" escalation. Canada has already announced reciprocal tariffs of 25% on $155bn of US goods with a staggered implementation period and with the country having the greatest scope to retaliate given more balanced trade with the US. During the announcement, PM Trudeau confirmed that President Trump has not met with him since inauguration day, implying that there are no high-level communications. With the US Executive Order already embedding a cross-retaliation provision, there is an immediate question mark on whether this is activated. Both China and Mexico have also threatened retaliation but with no firm announcements yet. This leaves some space for de-escalation, but with a negative time decay: the longer time goes by without signs of constructive engagement and retaliation from the other countries, the longer these tariffs are likely to be assumed to be permanent – and by extension the more negative the market reaction.

To conclude, given the magnitude of the economic impact involved, we hesitate to assume that the announced tariffs will be permanent. On the flipside, we have long been arguing that the market has been severely under-estimating revenue-raising considerations, and this will incentivize the administration to have tariffs in place ahead of the US budget negotiations in coming months. We expect the market reaction to at least in part shape the US reaction function, and this will be a reflexive learning process both for markets and the Administration in coming days. Irrespectively, the most long-lasting impact is likely to be a structurally more elevated tariff risk premium in coming months impacting all of America's trading partners.

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193 viewsedited  Feb 3 at 12:09

Continued:

· Attempts to block President Trump's tariffs in US courts. Given the highly expansive use of presidential authority under the IEEPA, impacted parties are highly likely to seek an immediate temporary injunction, similar to the restraining order on federal spending last week. The use of National Emergency powers has not been tested in this way before, so it is highly uncertain what the court reaction might be. The next few days will be a major test of presidential power and potentially cause additional market volatility. Still, even if an injunction is granted, President Trump also holds authority to impose tariffs over multiple other executive avenues, as per our analysis of the trade memo that was released on the first day of the Administration.

· The response from affected countries and "tit-for-tat" escalation. Canada has already announced reciprocal tariffs of 25% on $155bn of US goods with a staggered implementation period and with the country having the greatest scope to retaliate given more balanced trade with the US. During the announcement, PM Trudeau confirmed that President Trump has not met with him since inauguration day, implying that there are no high-level communications. With the US Executive Order already embedding a cross-retaliation provision, there is an immediate question mark on whether this is activated. Both China and Mexico have also threatened retaliation but with no firm announcements yet. This leaves some space for de-escalation, but with a negative time decay: the longer time goes by without signs of constructive engagement and retaliation from the other countries, the longer these tariffs are likely to be assumed to be permanent – and by extension the more negative the market reaction.

To conclude, given the magnitude of the economic impact involved, we hesitate to assume that the announced tariffs will be permanent. On the flipside, we have long been arguing that the market has been severely under-estimating revenue-raising considerations, and this will incentivize the administration to have tariffs in place ahead of the US budget negotiations in coming months. We expect the market reaction to at least in part shape the US reaction function, and this will be a reflexive learning process both for markets and the Administration in coming days. Irrespectively, the most long-lasting impact is likely to be a structurally more elevated tariff risk premium in coming months impacting all of America's trading partners.

BY EMCR experts