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CONTRIBUTORS

Michael Buchanan, CFA

Chief Investment Officer
Western Asset

Preview

In his latest market commentary, Western Asset CIO Michael Buchanan discusses the potential impact of US President-elect Trump’s proposed tariffs and other protectionist policies on global growth and inflation. While the ultimate timing, breadth and scale of the tariffs remain unclear, the direction is evident. Market pricing largely reflects the policies President-elect Trump touted in his election campaign, but the possibility remains the policies won’t be fully enacted. Michael discusses with Western Asset’s key macro decision-makers on the implications for interest rates and currencies in their regions.

Key takeaways:

  • US President-elect Trump has been quick to talk up a wide variety of tariff measures on US imports. Additional tariffs on at least some goods seem inevitable, though the timing and extent are hard to predict.
  • Market expectations are that the administration will move forward with select tariff regimes, focusing on key industries, rather than across-the-board tariffs. The rhetorical journey will be volatile, involving threats of less-targeted policies.
  • Should the 60% China/10% rest-of-world tariff plan which President-elect Trump campaigned on come into fruition then the broad macro impact would be higher relative growth and inflation in the US vis-à-vis the rest of the world. In essence, this appears to be the US desiring a larger slice of a smaller pie. Counter tariffs would magnify the growth downside whereas increased US investment and production would lessen the impact.
  • Tariffs, which are more transactional in nature, less broad-based—perhaps with a border policy goal taking priority over a trade goal—would have a smaller macro-economic footprint. Currently, markets are adjusting the probabilities between the broad and more narrow tariff regimes.
  • Many of Trump’s desired policy goals such as low inflation, low interest rates, strong growth, buoyant equity markets and a weak dollar sit uneasily with a more draconian tariff regime. Again, this lends support to a more nuanced regime. The journey toward whichever outcome prevails will see heightened market volatility and uncertainty.

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