By
Derek Hamilton
November 21, 2024
With the US elections concluded, markets are now looking ahead to potential policies from the new administration. President-elect Trump has proposed aggressive tariffs on imports, which could be likened to a tax on goods imported from another country. Trump has suggested several changes to the current tariff regime, including a 60% tariff on Chinese goods and a 10% tariff on goods from the rest of the world. While we would be surprised if the most aggressive policies were implemented, we believe the threat of a strong tariff policy should be taken seriously.
Studies have shown the cost of tariffs tend to be borne by importing countries, more so than by exporters, in the form of higher consumer prices and lower profit margins. We would expect this time to be no different.
In addition to affecting the prices of imported goods, higher tariffs can be detrimental to the volume of imports, primarily due to two factors: demand destruction from higher prices and the substitution of similar goods from other producers. While some estimates show the higher tariffs would likely hurt economic growth in the US in the short term, we would like to focus on the potential impact on exporting countries.
Assuming Trump does not implement an across-the-board tariff increase, we believe his administration’s policies will likely target certain countries that charge large tariffs on US goods, as well as those countries with which the US has large trade deficits. As you can see from the chart below, countries such as China, Mexico, and Vietnam and parts of Europe could be at risk if Trump chooses to focus on these metrics.
US annual goods trade deficit (by country)
Sources: Macquarie, Macrobond, US Census Bureau.
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