Tariff Talk

Tariff Talk

While talk of tariffs and trade continued, Fed Chair Powell’s announced his first hike; a Brexit breakthrough emerged.

“I will never sign another bill like this again"
President Donald Trump, signing the Congressional spending bill.

U.S. and China: Battle of the Lists Other than the tariffs on imported steel and aluminum, as yet there is no official list of what will be in the estimated $50 bn White House proposal President Trump mentioned in his press conference on Friday. That list, along with its exemptions, is scheduled to be announced in 15 days, if U.S. Trade Representative Robert Lighthizer makes his deadline. As of Friday, March 23, the plan is to have a period of public comment before any of these take effect.

But China now has its own list, announced on the heels of President Trump’s latest proposal, described as a response to the tariffs already in place. The $3 bn list includes a 25% charge on imports of pork and aluminum scrap. Wine, apples, ethanol and stainless steel pipes, among other items, would be taxed at 15%.

Both China and the U.S. have their own standby lists, apparently waiting to be triggered by each others’ actions. In passing, China mentioned its $1.17 trillion holdings of U.S. Treasury securities, but offered no suggestion that these would be involved.

Third parties stand to get caught in the crossfire, including Japan, a major steel exporter; and Australia, which exports raw materials and agricultural goods to China. Japan’s Nikkei 225 Stock Index fell -4.5% on Friday trading, and Japan’s TOPIX fell -3.6%. Australia’s All Ordinaries Index fell -1.9%. As for China, the Shanghai Composite fell 3.4%. In all three cases, the drops were more than 3 standard deviations below their 90-day averages.

The Fed: Powell’s first hike Chairman Jerome Powell’s first foray into the limelight featured very few surprises. The FOMC raised its Fed Funds target rate upper bound to 1.75%, a 25-basis point hike, approving the move unanimously (8-0).

But there were two changes of note. First, the FOMC’s joint economic and rate forecast, the “dot plot”, edged up slightly – which was viewed by keen-eyed Fed watchers as reflecting a slight tilt in favor of a more aggressive stance toward future rate hikes.  That is, if the U.S. economy keeps charging forward.

The second change was in the style of the press conference. Though Mr. Powell is as cautious as his predecessor Dr. Yellen, his style is less academic, more direct, and briefer – the press conference was half the length of the previous briefing.

Brexit breakthrough, mostly Negotiators reached a milestone agreement on the political terms of a transition period – which had been a major stumbling block. The deal is for the transition period to last 21 months, ending in December 2020, and contains agreed terms about the future rights of EU citizens, fisheries access, and other contentious issues.

The joint press conference featured the UK Brexit minister David Davis and EU chief negotiator Michel Barnier, and was held in Brussels, perhaps reflecting that it was the UK which seemed to make many of the concessions.

One of the most contentious issues, the nature of the border between the EU’s Republic of Ireland and the UK’s Northern Ireland, was left unsettled; but both sides seemed interested in avoiding the construction of a “hard border.”


All data source: Bloomberg, as of Friday March 23, 2018, 12:00 – 1:00 PM ET


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