Global Fixed Income Strategy July 2018

Monthly insights and updates from the Invesco Fixed Income team

Aug 1, 2018 | Invesco Fixed Income

Scope of US tariffs widens

The potential for a trade war went from rhetoric to reality on July 5th when the Trump administration levied tariffs on USD34 billion of Chinese goods.1 Tariffs on another USD16 billion of Chinese goods related to the initial USD34 billion is likely to take effect later this summer.1 The Trump administration has begun preparations for an additional round of tariffs on USD200 billion worth of Chinese goods2 and the administration has reportedly indicated that it is prepared to tariff a further USD500 billion of Chinese goods.3 In addition to these China-related tariffs, the US government is preparing to impose tariffs on foreign made cars. Car tariffs would be directed globally, including at Europe and Japan, and would represent nearly USD275 billion worth of goods.4

With these developments, the prospect of a global trade war has emerged more clearly and presents major consequences for global markets. The implications of a trade war are difficult to assess. Because the past 30 years have consisted of generally expanding trade liberalization and global trade, we are left with limited information on how financial markets would likely respond.

1 Source: The Washington Post, “U.S. levies tariffs on $34 billion worth of Chinese imports”, July 6, 2018.
2 Source: CNBC, “Trump administration announces list of tariffs on $200 billion in Chinese goods”, July 10, 2018.
3 Source: Reuters, “Trump threatens tariffs on all $500 billion of Chinese imports”, July 20, 2018.
4 Source: Goldman Sachs, Economics Research, Dissecting the Effect of Tariffs on US-China Trade, July 9, 2018.

To continue reading, click Download PDF