Markets in North America sold off steeply as President Trump announced US$60 billion in tariffs against China, provoking the spectre of a trade war. Brittany Baumann, Macro Strategist, TD Securities, talks to Sara D’Elia about whether the market fears are overblown, the likelihood of a trade war with China and how investors should respond to the market volatility.
President Trump has announced $50 billion in tariffs on Chinese goods, sending the markets lower today. Here to explain her take on what happened is Brittany Baumann from TD Securities. Thanks for being here, Brittany.
Good to be back.
So I have to ask you. We're currently sitting at the Dow being down around 700 points for the day. North American markets are lower across the board. What's your take? Are we headed for a trade war?
So the announcement today was expected, for one. And we know since Trump's campaign, and since last year as well, that the administration does want to take a stand against China, specifically on their trade practices. And this was first initiated last year in the Section 301 investigation on Chinese intellectual property practices.
So those findings were released today. And it was accompanied by a response on how to take action on the corruption that was found, which came out in those findings. And of course, the response that the administration has been floating is tariffs on about $50 to $60 billion worth of Chinese imports.
Now, we do go through a comment period right now. But at this stage, for one, these tariffs do not amount to much on a macro scale. In general, they are stagflationary. They're going to impact supply chains in the US, and therefore, lead to job losses on net, and raise consumer prices, but still amount to a fairly small margin.
So what we'd be more concerned about is if this turns into a more full-blown trade war where China retaliates, and then the US retaliates, and it goes from there.
It sounds like what you alluded to is the announcement was expected. The details sound largely aligned with what we expected. But we saw a pretty big move in the market. Why are we seeing this? And is it really an overreaction or is it justified?
So if anything, there's a lot of uncertainty. Our own view is that China does not want a trade war. So their response will be measured. We do expect them to retaliate. They've already floated that to the US on specific products that are important, a good that's exported to China, as well as from areas of the US that are politically sensitive, as well. That, of course, includes the agricultural sector.
But what we expect from here is that this actually opens the door to a negotiation phase between China and the US on how does China respond to the corruptive practices that the US has found in the Section 301 investigation. And given that China does not want a full-blown trade war, does want to remain a trade partner with the US, we expect China to be receptive in those negotiations.
So unfortunately, I think for markets this is going to lead to a period of volatility. Right now it's risk off because tariffs, in general, are stagflationary, and they can lead to a full-blown trade war. But in our view, risk of a full-blown trade war is low. This process is probably just going to drag on. And therefore, that level of uncertainty is going to be here to stay for a little while.
So it sounds like we could see some retaliation. In the meantime, possibly some negotiations could take place. And that could mean some more volatility for the markets.
Absolutely. So stay tuned.
Thanks very much for being here.