|06 March, 2018

U.S. tariffs - A political show?

Hussein Al Sayed is the Chief Market Strategist for the Gulf and Middle East region at FXTM, and host of the popular evening business show on CNBC Arabia, Bursat Al Alam. Prior to his current role, Hussein spent many years working in the finance sector as a dealer, trader and analyst in equities, credit and foreign exchange markets. He holds a BA degree in Banking and Finance from the Lebanese International University and is experienced in both technical and fundamental analysis.


History has taught us that trade wars are not good and, in fact, not easy to win.

The 1.1 percent surge in the S&P 500, the 336 points rally in the Dow Jones Industrial Average and the strong bounce in European markets on Monday are hard to justify after President Trump announced plans to slap tariffs on steel and aluminum imports last week. He followed this up with a statement saying that trade wars are good and easy to win.

History has taught us that trade wars are not good and, in fact, not easy to win. In March 2002, President George W. Bush took a similar approach to Trump, imposing tariffs of 8-30 percent on steel to revive the domestic industry and exempted Canada, Mexico and a few other countries. These temporary duties were scheduled to remain in effect until 2005. As a result, the E.U. threatened to impose retaliatory tariffs on U.S. products and a case was filed at the World Trade Organization, which ruled in November 2003 that more than $2 billion in sanctions would be levied if the U.S. did not remove tariffs. Less than a month after the ruling President Bush backed down and withdrew the tariffs.

The S&P 500 dropped more than 30 percent from March until July 2002, U.S. 10-year treasury yields fell 100 basis points, and the U.S. dollar lost more than 12 percent in the same period. Of course, many other factors led to these declines, but surely the tariffs did not benefit the economy as Bush thought it would.


Investors seem to believe that President Trump is using his “Art of the Deal” skills to get better trade deals with the rest of the world or, as Ray Dalio, the Bridgewater Associates founder, wrote on Monday: “what is happening now is more for political show than for real threatening."

Trump tweeted yesterday (Monday, March 5) that “Tariffs on steel and aluminum will only come off if new & fair NAFTA agreement is signed”. This confirms my belief that this mess will likely end up with Mexico, the E.U. and China taking a less protectionist stance, rather than the U.S. taking a stronger one.

House Speaker Paul Ryan and other conservatives are not falling in line behind Trump, only time will tell how the situation will evolve, given the unpredictability of Trump. Although I am optimistic that things won’t degenerate to a full scale trade war, caution is warranted at this stage. 

Futures indicate that equities will continue the rebound when Europeans markets open, but there’s little action in currency markets. I think investors are holding off from big bets ahead of the European Central Bank meeting on Thursday and the U.S. jobs report release on Friday. With no tier-one data on the economic calendar today, expect range-bound trading to resume unless we see a surprise on the political front.

Disclaimer:  This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice. 

The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs, and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client’s needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with licence number 185/12 and licensed by the SA FSB with FSP number 46614. Forextime UK Limited is licensed with the UK FCA, number 777911. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.

Any opinions expressed here are the author’s own

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here. 

© Opinion 2018