With over 50 days left until Donald Trump takes office, he has already set the stage for a potential trade war that could disrupt the global economy.
On Monday, the president-elect announced plans to sign an executive order imposing a 25% tariff on all imports from Canada and Mexico, along with an additional 10% tariff on imports from China. He claims these measures are in retaliation for the flow of drugs and migrants crossing U.S. borders.
Although Trump promised during his campaign to introduce universal tariffs on all imported goods, these actions specifically target the U.S. three largest trading partners. In 2023, U.S. businesses imported over $1.2 trillion worth of goods from Canada, Mexico and China.
Who pays for tariffs? This question has sparked debate after the election. Tariffs are paid by importers, not by the countries exporting the goods, and those costs are typically passed on to consumers. Economists warn that imposing such tariffs could drive up inflation and interest rates and result in higher consumer prices. As a result, Trump’s use of tariffs as a tool to combat illegal immigration and drug trafficking could be a double-edged sword.
Currency markets are already feeling the impact of Trump’s aggressive trade policies. Traders have turned to the Japanese yen as a safe haven currency.
On Wednesday, the USD/JPY pair dropped, with Japan’s currency gaining about 2% against a weaker U.S. dollar over the past few days. The dollar-yen exchange rate fell from around ¥154.50 to ¥151.40, continuing a two-week downward trend.
More interestingly, the US dollar is approaching the 200-day simple moving average, a signal of a potential long-term bearish trend.
Amid these developments, the U.S. Federal Reserve released its meeting minutes from three weeks ago detailing its discussions on interest rates. Policymakers expressed confidence that inflation is moving toward the Fed’s 2% target and confirmed plans to further reduce interest rates to support labor market recovery and economic growth.
