March 20, 2018 in News & Events | by Dhruv Maniktala

The Potential Consequences of Steel and Aluminum Tariffs

On March 1, 2018, President Trump announced his intention to impose tariffs on both steel and aluminum imported from outside the US; 25% and 10% respectively. All indications at the time of this writing are that the tariffs would be applied to all countries, with few exceptions.

This development has raised the specter of a trade war with the United States’ major trading partners including the EU, China, Canada, and Mexico. Trump has softened his stance by indicating that countries that treat the US fairly would get relief from the tariff.

Aside from the uncertainty of retaliation from US trading partners, international fallout may follow.

Steel stairway

Potential Consequences:

  1. Tariffs and trade wars typically lead to higher inflation and lower economic growth which have a negative impact on the markets.
  2. While trade restrictions will create headwinds for the equity markets, ultimately it is high valuations that have a bigger long-term impact.

What We Are Doing:

  1. Since we believe expensive markets are more vulnerable to negative externalities, we were already defensively positioned in client portfolios ahead of these developments.
  2. Our inflation protection strategies should benefit from potentially higher inflation if this policy shift does materialize.
  3. The limited duration of our fixed income should also buffer us from rising rates driven by higher inflation caused by these policies.
Political retaliation from other countries toward the US can negatively impact imports coming into the US resulting in increased costs on items such as clothing, food, and lifestyle items such as electronics. Agricultural exports will suffer additionally after experiencing a decline the past two years. We can only assume we are in for a bumpy ride if this ‘tariff talk’ continues.
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