Trump’s Tariffs May Not Last Long as They Weigh on the Stock Market: Citi
Can the Tariffs Last?
Robert Sockin, Global Economist at Citi, recently shared his views on the potential impact of tariffs on the global economy. His key takeaway is that Trump’s tariffs may not last long as they weigh on the stock market. Are we on the right track?
The Concerns
The recent imposition of 25% tariffs on Canada and Mexico, coupled with an additional 20% effective tariff on China, has sent shockwaves through international markets. The tariffs have raised concerns about their long-term economic effects, with many experts predicting a potential stagflationary outcome.
How Do Tariffs Affect the Economy?
- Stagflation: Tariffs can lead to higher prices, reducing purchasing power and increasing the risk of stagflation, a situation where the economy is marked by high inflation and stagnant economic growth.
- Economic Challenges: The tariffs can lead to a slow down in economic growth, potentially shaving off over 1% from US real GDP over several quarters.
Sockin’s Perspective
According to Sockin, Trump’s sensitivity to stock market performance is a crucial factor in determining the longevity of the tariffs. "We know from Trump’s first term that he cares a lot about the performance of the economy and the performance of the stock market. And it seems that under fairly large tariff scenarios, the economy is challenged, and the stock market is challenged." This raises the possibility that the tariffs are being used as a negotiating tactic rather than a long-term policy.
Citi’s Forecast
Citi’s economic models suggest that Canada and Mexico would bear the brunt of the damage due to their deep economic ties with the US. The uncertainty surrounding tariffs puts the US Federal Reserve in a difficult position, leading Sockin to believe that if broad-based tariffs are implemented, the Fed would need to cut interest rates in that environment.
Global Insights
Despite the uncertainty surrounding tariffs, Sockin remains optimistic about India’s economic trajectory, noting that it has been one of the best-performing emerging markets. Citi’s forecast for Indian growth is roughly in line with last year’s pace, which was solid in the mid-6% range. However, he acknowledges that India may not be fully insulated from global trade disruptions and will need to navigate the evolving geopolitical landscape carefully.
China’s Economic Outlook
On China, Sockin highlights a mix of domestic economic challenges and external risks from US tariffs. Citi’s forecast expects China’s growth to slow from 5% last year to approximately 4.2%, assuming tariff increases persist. However, Chinese authorities may counteract these effects with further stimulus measures. "We have to watch both the US space closely for the tariffs and how the Chinese authorities respond," Sockin said.
The Bottom Line
As the global economy navigates the challenges presented by tariffs, one thing is clear: Citi’s Robert Sockin believes that Trump’s tariffs may not last long as they weigh on the stock market. The uncertainty surrounding tariffs and their potential impact on global economic growth underscores the need for continuous monitoring of policy developments and economic data. As the world waits with bated breath to see how the tariffs play out, one thing is certain – the economic landscape will be shaped by these critical decisions.
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