Susannah Streeter, Chief Investment Strategist, Wealth Club said, “Just when there appeared to be a lull in the tariff storm, President Trump has whipped up fresh economic chaos.
He’s meting out punishment to European countries opposing the administration’s demand that Greenland becomes part of the US, either through purchase or invasion.
This is the President’s modus operandi – unleash uncertainty and threats of more onerous measures, to coerce nations to acquiesce to his demands.
There may be some relief though that military annexation plans appear to have been put on ice, and that this period of negotiation over a ‘purchase’ appears now to have started.
But given how entrenched both sides are in their positions regarding Greenland’s future, it looks likely that the 10% tariff is here to stay for a considerable time, with an increase to 25% highly possible in June.
This is a migraine inducing development for politicians who have already had to go through tortuous negotiations to reach the first tranche of tariff deals, winning exemptions for certain sectors.
For companies selling into the United States, and their customers this move creates another layer of difficult decision making. Already they’ve had to try and absorb the current tariffs, there will be little room to soak up any more, so this new tranche of duties is likely to end up being passed onto American customers. Many will baulk at paying higher prices, leading to lower sales, hurting exporters. Some importers of crucial goods may eye up the threat of a 25% tariff from June, and bring forward sales, which could provide an initial bump, but then are likely to look elsewhere for a longer-term cheaper supplier.
Already business confidence has taken a dive in the UK, and this latest move will add to firms concerns. The economy did appear to be taking tentative steps forward in terms of growth, but looks set to falter once again if fresh tariffs stick. Given the chaotic nature of doing business with the United States, many companies will be looking to diversify their income streams and find new customers in less problematic nations. It’s a strategy China has been pursuing, and its exports rose more than expected last year as new trading relationships were forged. It’s likely to heighten calls for the UK to forge closer trade ties with the EU to offset the damage wreaked by US tariffs.
Higher prices for US businesses and consumers are on the way for vast swathes of products – from cars and olive oil to chemicals, aircraft and medical products. It will raise inflationary pressures in the US, at a time when many households are already struggling with food prices increasing steeply again in December. It could set the stage for tensions to become even more strained between the White House and the Federal Reserve. President Trump has been angered by the Fed’s reticence to reduce interest rates more quickly, and policymakers are likely to be even more stubborn as tariffs are ramped up again.”
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