US: Economy guided by the trade tariffs - Westpac

Robert Rennie, Research Analyst at Westpac, suggests that now when Trump agreed with EU Commission President Juncker to “work together toward zero tariffs”, will that mean that tariffs have gone from ‘hero to zero’ in Trump’s mind?

Key Quotes

“We think not. Indeed, while we might be reading too much into the ‘art of the trade deal’, our sense is that the US administration may be emboldened and actually double down on the China tariff strategy to try to force ‘fair trade’ agreements there.”

“This would suggest that we have further waves of China tariffs still to come; and if we use the timeline for the section 301 investigation into China’s trade acts, policies & practices across, we would expect to see further tariffs end of July ($16bn) and end of early Sep ($200bn).”

“Indeed, with support for farmers impacted by Chinese retaliation announced by the US administration this week and Trump suggesting last week on CNBC that he was “ready to go to 500”, we would not be surprised to see further tariff action beyond that ahead of the mid-terms.”

“Now that is not to say that plurilateral trade agreements between the US and Europe are not a positive outcome – of course they are! Rather we should not read too much into the current outbreak of positive trade news as more negative waves are coming, suggesting near term US$ weakness will not last too long.”

“On top of the above, a ‘4 handle’ for GDP this Friday, a solid ISM, a punchy payrolls and an FOMC meeting that will likely continue pointing towards Sep and Dec moves should all help limit downside for the US$ near term, and potentially reverse it in August.”

“Thus we stick with the ‘fade US$ weakness view’, though acknowledge that we could see a test back into the ‘mid 93s’ on DXY near term.”