The next few months could be high impact in terms of trade, inflation, growth, and price pressures. Read on to get all the details in this week’s edition of Steady Investor’s Week.
Steel and Aluminum Tariffs Go into Effect – effective March 23, the Trump administration’s steel and aluminum tariffs go into effect, which has companies and countries who rely on the products scrambling to qualify for exclusions to the tax. The U.S. Commerce Department states that all requests for exclusions should “clearly identify, and provide support for, the basis upon which the exclusion is sought,” adding that it could take up to 90 days for an exclusion to go into effect. So far, the U.S. has already given temporary exemptions to Canada, Mexico, the European Union, Argentine, Australia, Brazil, and South Korea – while they negotiate with the United States for policy moving forward. At the end of the day, the steel and aluminum tariff ended up being, at least for now, a much softer blow than originally expected. Canada and the EU are our biggest steel providers by far, and they are exempt from the tariffs. In my view, this story was a classic case of a big fear that turned into an outcome that was much better than expected.1
Tougher on China – China was not one of the countries exempted from the steel and aluminum tariffs, and going a step further, the Trump administration appears poised to levy a massive tariff package aimed at punishing China for their “economic aggression” over the past two decades. President Trump is specifically addressing the imbalance of trade between the U.S. and China, where China has also managed to impose strict rules for doing business there that Chinese companies do not face here in the US. China is apparently already preparing to retaliate with tariffs of their own, focused on U.S. exports of soybeans, sorghum and live hogs. The USDA has already said in response that it stands ready to defend domestic producers that may be harmed by foreign country retaliation, which sounds like language fully acknowledging that a trade war may be underway. The coming months should be very telling ones.2
$1.3 Trillion Spending Bill – House leaders this week passed a $1.3 trillion spending bill that would fund the government until October. The spending measure offers victories to both parties, by including $80 billion in additional spending for defense for Republicans and $63 billion in domestic spending which is largely a win for Democrats. The spending bill does not include any provision for DACA or a border wall (just fencing and improved border security). The bill must pass both chambers of Congress and be signed by the President by Friday in order for the government to avert a shutdown.3
Fed Raises Interest Rates – In a widely expected move, the Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, pegging the benchmark interest rate in a range of 1.5% to 1.75%. This hike marks the 6th time in this expansion that the Fed has tightened, and Chairman Jerome Powell indicated that he expects two more hikes in 2018 – with perhaps four in 2019. In the Fed’s meeting, officials raised their median estimates for economic growth this year to 2.7%, up from 2.5% in December. The Fed also expects the unemployment rate to fall to 3.8% this year.4 The projections do not include the potential impact of a trade war, since the existence of one is more speculation than fact at this stage. The next few months could be high impact in terms of trade, inflation, growth, and price pressures.
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