emerging
Tariff and Trade Uncertainty
The potential for increased tariffs, particularly on China and potentially other countries, poses a significant risk to global trade and economic growth.
Timeframe
near-term
Subcategories
Impact areas
Detailed Analysis
The potential for a broader trade war is a key source of uncertainty. "A tariff on Europe or an across-the-board tariff would be more disruptive to global trading arrangements, have a larger impact on US inflation (upwards of 1 percentage point on core PCE on our US team's estimates) and, as a consequence, drive more financial conditions tightening." The report suggests that this risk is currently underpriced by the market, and that a shift in market sentiment towards this outcome could have significant implications for currency markets and equities.
Context Signals
Market reaction to 2018-2019 China trade war
Pressure on Mexican Peso due to tariff threats
USMCA review process
Edge
The underpricing of broader tariff risks presents a potential opportunity for investors who can accurately assess and hedge against this scenario.
The impact of tariffs on specific sectors and industries will vary, creating both winners and losers.
The potential for retaliatory tariffs from other countries adds another layer of complexity and uncertainty.
