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There’s A New Tariff In Town

Commentaries & Views

Saddle up and hold on to your 10-gallon hat. There is a new tariff in town, and he’s not afraid of a little trade war. As expected, this afternoon President Trump made good on his pledge to implement strong tariffs on both steel and aluminum. Although it will exclude both Canada and Mexico, it will seek to target significant trade disparities between the United States and some of its trading partners.

President Donald Trump signed a proclamation this afternoon that will impose a 25% tariff on steel and a 10% tariff on aluminum which will be implemented in 15 days.

Surrounded by steelworkers, as well his economic advisers who had backed the plan, President Trump said, “Today I’m defending America’s national security by placing tariffs on foreign imports of steel and aluminum.”

While this tariff might, in fact, raise the cost of many consumer goods utilized in America and be the spark that ignites a trade war, the reaction in the financial markets was relatively muted. The lack of any real knee-jerk reactions to this afternoon’s tariff proclamation might indicate that for the large part it has already been factored into current market sentiment.

Another possibility is that by exempting products from Canada and Mexico, this tariff opens the possibilities of other trading countries gaining an exemption status by lobbying for a similar condition.

Tariff Might Escalate Tensions Resulting in a Trade War

However, this does not include all trading partners and, as such, creates a real possibility of escalating tensions from other countries. China, for example, issued a response today when its Foreign Minister, Wang Yi, promised to release a “justified and necessary response” to any efforts to incite a trade war.

Speaking to the National People’s Congress in Beijing, he urged the United States to work with China on a mutually beneficial solution saying, “A trade war has never been the right way to solve the problem, especially under globalization. Such a conflict will only harm everyone and China will surely make a justified and necessary response.”

Earlier in the week global pressure and threats of retaliation emerged from global partners. A warning issued by the European Union on Tuesday stated that it would respond with its own 25% tariff to hit 3.5 billion of U.S. goods. This would include targeting U.S. brands ranging from consumer, agricultural, and steel products.

According to a list drawn up by the European Commission, obtained by Bloomberg news, targeted U.S. goods include motorcycles, jeans, and bourbon whiskey. We will need to see if the EU follows through with action.

Gold Buyers Unable to Overcome Dollar Strength

The U.S. dollar has been extremely strong in today’s trading, gaining over a half percent in value. Currently, the dollar index resides at 90.10, which is a net gain of 49 points on the day. This, of course, has a direct correlation to those commodities paired or traded in dollars, such as gold, silver, and oil.

Gold continues to trade under pressure today, with over 100% of today’s decline as a direct result of dollar strength. As of 4:15 PM Eastern standard time, spot gold is currently fixed at $1321.70 with a net decline of $3.20 on the day. According to the Kitco Gold Index, dollar strength has taken away $8.20 in value today. Buyers have bid up the precious yellow metal adding roughly 5 dollars’ worth of value.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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