Written by: David Lebovitz
Economists and investors believe that free trade is a good thing, as it improves the welfare and consumption opportunities of all parties involved. On March 1, the president announced that beginning next week, the U.S. would begin to impose a 25% tariff on all steel imports, and a 10% tariff on all aluminum imports. Markets have found themselves under pressure in the wake of this announcement, as one of the largest risks for 2018 – the potential for more protectionist measures to evolve into a trade war – seem to be coming center stage. But how much should we worry about tariffs?
The first way to evaluate the risk is through an economic lens – total imports of steel and aluminum account for 0.2% of U.S. GDP, and domestic production account for 0.5% of U.S. GDP, highlighting that these sectors account for a small share of American business. Furthermore, one of the biggest concerns has to do with whether this is the beginning of a standoff with China; that doesn’t necessarily seem to be the case, as we get the majority of our steel and aluminum imports from other trading partners – steel imports from China only account for 2.2% of the U.S. total.
That said, markets remain focused on the potential for this to escalate into a trade war, which would likely result in higher inflation, some sort of retaliation, and a subsequent deterioration in global trade and corporate profits. However, investors should take comfort in the fact that yesterday’s announcement only represents one step in that direction – the last time we took a similar step was 2002, and retaliatory action by our trading partners led those tariffs to be pulled after 19 months. We expect things could play out in a similar fashion this time around; both domestic and foreign pushback should minimize the chance of escalation, as the cost of a trade war would be high for all parties involved.
Learn more about alternative beta and our ETF capabilities here.
This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.
Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.
J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.
Copyright 2018 JPMorgan Chase & Co. All rights reserved
11 Most Read IRIS Articles of the Week!
How To Build Trust (And Your Authority)
7 Areas to Engage Yourself to Engage Clients
What It Means to Be Extremely Productive
What’s The State Of Today’s Technological Development In The Automotive Industry?
Taking Your Employee Advocacy Mindset to the Next Level
Top 7 Tips of Becoming the Best Employee in Your Organization
Should I Buy that Beach Home? Or, Should I Rent?
Focus on What You WANT To Happen
Non-Rated Issues on the Rise, and Why it Matters
Advisor Marketing1 day ago
7 Areas to Engage Yourself to Engage Clients
Equities2 days ago
Nasdaq Should Reach 8031 Before Topping
Perspective2 days ago
Industrial Hemp: Discussing a Risky, But Potentially Lucrative Niche With Clients
Research2 days ago
This Technology Everyone Laughed Off Is Quietly Changing the World
Insights2 days ago
The Future of Education
Equities3 days ago
Could Trump Really Win the 2020 Election?
Behavioral Intelligence3 days ago
Advisors: Are You Asking the Tough Questions?
Development3 days ago
Will the Rumored Merrill Retention Package Materialize?