- Markets may rally around occasional tariff reprieve or trade deal.
- But we fear lasting damage to global order of trade and commerce.
- Gold has rallied 21% this, while USD and UST have lost value.
- This attests to the nervousness of investors.
- US assets no longer seem the place to hide during times of heightened uncertainty.
Related Insights
Commentary: Spillover from Trump’s policy “flexibility”
During yet another week of elevated market volatility, trade war escalation and de-escalation, and persisting policy uncertainty, the rest of the world remained fixated on the pronouncements from the White House. The blizzard of tariff announcements, followed by partial rollbacks and postponement, has made even a basic statistic like average tariff on US imports all but impossible to estimate precisely.
Latest news-flow suggests exemptions on smartphones, laptop computers, hard drives, computer processors, memory chips and other electronics products (from tariffs of 125% on China and 10% on the rest of the world). But as is the case with most policies under Trump, it is not at all clear if the tariff reprieve will be a lasting one. Indeed, the administration is expected to soon launch a new investigation into the import of semiconductors, which could lead to a renewed imposition of tariffs on related products.
The Trump administration terms this constant state of flux as policy flexibility, with the sword of tariff hanging over counterparties for perceived transgression on trade (reciprocal tariff), currency practice (specific tariff), and relations with adversaries (secondary tariff). At the end, this approach is expected to extract favours, concessions, market access, balanced trade, and a “user fee” for benefitting from the US security umbrella. Influential advisers like Peter Navarro (President’s Senior Counsellor for Trade and Manufacturing) and Stephen Miran (Chair of the Council of Economic Advisers) see tariffs, actual or threatened, as a critical tool to implement President Trump’s America First agenda.
Embedded in this approach is the supposition that trade is a zero-sum game, any tariff imposed-loss will be on China as its runs a large trade-in-goods surplus with the US (amounting to USD360bn last year).
The events of the past two weeks support the opposite case. Trade is a positive-sum game, with both sides primed to gain from trade or lose from tariffs. Additionally, the substitutability of the goods flowing back and forth is key. If China puts tariffs on imports of American agriculture goods and energy products, two of its key imports from the US, it can purchase them elsewhere, from Latin America, Russia, and the Middle-East. But the US, with its blanket 145% tariff, can’t readily find alternative producers of goods like electric fans and microwaves, as 90% of its imports of such products are made in China. This is the case for numerous goods; moving their production onshore or to ostensible allies will take years, if ever.
Right or wrong, tariff weaponisation is here to stay. Markets may rally around occasional tariff reprieve or trade deal, but the damage to the global order of trade and commerce is going to be lasting, we fear. The key reason is that the reliability of the US as an upholder of rules and agreements has been eroded considerably by Trump’s policy “flexibility” strategy. Gold’s 21% rally year-to-date, plus the sustained selling pressure on US dollar and US treasuries this month, attest to the nervousness of global investors. US assets have always been seen as a refuge during times of uncertainty. Strikingly, that does not appear to be the case in these epoch defining times.
To read the full report, click here to Download the PDF.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if they are falls within 'financial instruments' that are within the scope of Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.