Tariffs will send interest rates DOWN.
Forget all reflation fantasies you are getting from this.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
Today will likely be an important date in history. This seems to be the official launch of a new global trade war. Trump signed executive orders that impose 25% tariffs on most imports from Canada and Mexico and 10% on China. Canadian crude oil is a notable exception and will be charged 10%. These tariffs will take effect this coming Tuesday, not March 1 which was rumored earlier this week!
This is a big deal. The US import roughly $1.4tn annually in goods and services from these countries, almost 5% of US GDP. Not accounting for any changes in trade volumes, this would raise tariffs of about $250bn annually. For reference, this is about twice as big of a deal as the 2018-2020 US-China trade war in which the US eventually raised tariffs on import transactions corresponding to about 2.6% of GDP.
Media and social media are currently focusing on how consumers will be impacted by these tariffs in terms of potential inflationary pressures:
Reuters: Trump tariffs to stoke US food inflation despite pledge to lower costs
USA Today: Trump's tariffs on Mexico, Canada, China would sock economy, lift inflation
As I am primarily looking at the economy through financial market lenses, I am obviously mostly interested how stock prices and interest rates will be impacted. To the extent that tariffs do trigger consumer price increases, one might be compelled to expect higher interest rates. I firmly oppose this line of thinking as I will articulate below.