Tariffs: How Scared Should We Be?

The news that Trump will announce tariffs next week on steel and aluminum creates large uncertainties that will prolong the present equity markets correction, compounding skepticism about our new dilettante Fed chair. We have respect for the very real risks here. We don’t know the details of the tariffs yet, and they might be significantly watered down next week. At worst, the total tax bill is only about $8 billion per year. Retaliation is possible, but counterparties are not in a strong position to carry it out. Trump is constrained by WTO, by powerful vested interests, and by broader US interests – which explains why there have been no protectionist moves till now – so it’s not clear that this is the opening shot in a trade war.