Trump’s new tariffs take effect on biggest US trading partners, creating more uncertainty for the global economy. “The primary question… is whether or not there will be negotiations,” said Thierry Wizman, a global strategist at the investment bank Macquarie. “And no one has an answer to that because it’s going to depend on the approach and the disposition of the negotiating parties.”
European Union prepares to impose tariffs up to 25% on a broad range of US exports. The EU’s retaliation plan is a gamble that could backire. “Europe can hurt America, and retaliating seems like a good strategy if you believe that Trump cares about the political fallout from economic pain here at home,” said Michael Strain, director of economic policy studies at the conservative think tank American Enterprise Institute, in Washington. “The worry is that he doesn’t care.”
US Treasuries fell sharply on Wednesday, highlighting concerns that traditional safe havens may come under pressure in a global trade war. “What we are seeing is a move back to cash and also maybe a question of what assets are safe and it seems right now that cash is the only thing. We’re looking at things like the correlation between the dollar and yields,” said Michael Metcalfe, head of macro strategy at State Street Global in London. “The dollar is not getting support from yields and that suggests the dollar is not a currency safe-haven. The fact that US Treasuries are selling off at the same time as stocks suggests this is a deleveraging move.”
The global trade war puts the Federal Reserve in a “no-win” situation, said Laurence Meyer, a former Fed governor as the potential for higher inflation and slower growth cloud the outlook for monetary policy. “This administration has generated the worst shock possible for the Fed, and there’s nothing that they can do right now,” said Riccardo Trezzi, a former Fed economist who runs Geneva-based Underlying Inflation, a consulting firm.
US 10-year Treasury yield rises for a second day on Tuesday. “The sell-off may be signalling a regime shift whereby US Treasuries are no longer the global fixed-income safe haven,” said Ben Wiltshire, a G10 rates strategist at Citi.
