EXPLAINER-How tariffs, trade war fears roil U.S. financial markets

From Reuters - March 8, 2018

NEW YORK, March 8 (Reuters) - U.S. President Donald Trumps plans to impose tariffs on steel and aluminum imports has rippled through financial markets since last week, when his initial announcement set off fears of a global trade war.

Trump has stood by the tariffs, despite resistance from his fellow Republicans and other countries, which have vowed to respond with levies of their own, and on Thursday, Trump pressed ahead with the imposition of 25 percent tariffs on steel imports and 10 percent for aluminum. But he exempted Canada and Mexico, backtracking from earlier pledges of tariffs on all countries, while other countries can apply for exemptions.

The announcement was viewed by investors as a watered-down version of the initial plans, to be used potentially as leverage involving NAFTA and other agreements. But investors still worried about whether this would be the first salvo in a broader trade conflict that could prompt retaliation.

It is good news to see Canada and Mexico carve out. It is also good news to see some flexibility on others, said David Kotok, chairman and chief investment officer with Cumberland Advisors in Sarasota, Florida. The whole theme of tariffs, quotas, barriers is still troubling. No one wins in a trade war.

Heres how the tariffs have jostled asset prices and could sway markets going forward:


The potential for Trumps actions to sprawl into a broader trade war has caused uncertainty for equity investors, at a time they are jittery after a swift 10 percent correction last month created a more volatile trading environment.

An escalation into a trade war could reduce future growth expectations and equity valuations, according to UBS strategists.

He dialed it back a little bit, but theyre still tariffs, and were still going in the wrong direction from a policy perspective if youre a markets-focused globalist, said Michael ORourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

In and of themselves, the steel and aluminum tariffs are seen by market strategists as having limited overall impact. But the prospect of the tariffs has weighed on shares of specific industries, such as machinery companies and automakers, because of the potential to raise their costs.




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