Decision Time: Will the US Impose Tariffs or Not?

by M. K. Matthews

A few things you need to watch for economically this week could very well set the table for what comes next week and beyond.  The influencers will be both geopolitical and earnings driven.  It’s important to note that Trump’s decision about the looming tariffs will not just affect Russia and China, but also, our allies in Europe.

Here’s what to look out for this week.

Watch for reactions to the tariff decision on the geopolitical front

The midnight hour when Trump has to deliver his decision on tariffs arrives 12:01 Tuesday.  He has set intentions to impose a 25% tariff on steel and a 10% tariff on aluminum on the companies that obtained a temporary exemption.  This list includes and affects some of our closest allies.   The temporary exemptions extended to the EU, Canada, Mexico, Australia, Brazil and Argentina, which if revoked would throw the global markets into turmoil and international supply chains into a deep well of uncertainty, as the exemptions add up to almost half of the U.S. steel imports.

There is a slight possibility that the date will be extended but that won’t erase the uncertainty that will remain in the interim. It is still unknown if some countries can negotiate limited quotas, make deals on goodwill, or if all countries will be slapped with tariffs.

Europe

The New York Times reports that Ms. Merkel (Germany), Mr. Macron (France) and Ms. May (U.K.) released a joint statement that if the U.S. tariffs go into effect, “The European Union should be ready to decisively defend its interests within the framework of multilateral trade rules.”  It is possible that if the tariffs go into effect ships carrying steel could be barred from entering U.S. ports of delivery.  This would definitely interrupt the international supply chain and the global economy as the U.S. and E.U. account for fully one-third of world trade.

If the tariffs are imposed this would be asking our trade partners to break World Trade Organization rules.  If favored E.U. countries are released from the tariffs that would break E.U. Treaty Rules.

NAFTA

For Canada and Mexico, the tariffs are being tied to the NAFTA negotiations, which in their current form set forth a trilateral agreement that the three countries share in the preferential tariff agreement.  Negotiators from the three countries are scheduled to meet again May 7th to further hammer out the final agreement.

The TPP

May 12th is the next cliffhanger date to mark on your calendars as that is the date we will know whether the U.S. stays in the T.P.P. or not.

“Commonly known as the TPP, the trade agreement was a key policy for the Obama administration. Until Trump pulled the country out, the United States had been a signatory along with 11 other countries including Japan, Vietnam, and Australia. The deal aimed to lower tariffs among the countries and counter Chinese influence in the region.”

I strongly encourage all to read the link below to gain understanding on the current administrations wavering positions on the TPP.   https://www.washingtonpost.com/news/worldviews/wp/2018/04/13/a-timeline-of-trumps-complicated-relationship-with-the-tpp/?utm_term=.acfe0b83c565

On the market front

Earnings week continues for the Equities through this week and next.

Overnight Market results:  Stocks in Europe edged higher, U.S. futures advanced, and equities across Asia gained as dealmaking activity brought some excitement to the start of a busy week. The dollar climbed while the pound declined as Prime Minister Theresa May lost a key ally.https://www.bloomberg.com/news/articles/2018-04-29/asian-stocks-set-to-trade-mixed-dollar-edges-up-markets-wrap

On the economic front

Numbers, including Personal Income and Spending and PCE (personal consumption expenditures*) core prices will be released along with pending home sales, giving insight into the current conditions at 8:30 a.m. EST on Monday, April 30th. 

Here is a chart of what is anticipated and the blanks will be filled in with the actual numbers as they are released.  http://markets.businessinsider.com/economic-calendar#date=04/30/2018&name=&countries=us&eventtypes=&tab=1,2,3

*The “core” PCE price index is defined as personal consumption expenditures (PCE)prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends.