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Tariffs

Escalating Trade Tensions and Global Uncertainty

Strategic Insights

— 2 min read

Brazil may be one of the least affected countries by the trade tensions initiated by the Trump administration, but the global slowdown is likely to impact domestic economic activity. The recent changes in U. S. trade policy have dramatically heightened global economic uncertainty, raising the likelihood of a U. S. recession, inflationary pressure, and a sharp global slowdown. Brazil may benefit from increased commodity exports to China, which is expected to seek out new suppliers for primary goods it currently imports from the U. S. However, the Brazilian government needs to be cautious and avoid introducing further fiscal or credit stimulus measures to control inflation.

Key Takeaways:

  • The Trump administration's protectionist measures have heightened global economic uncertainty, raising the likelihood of a U. S. recession, inflationary pressure, and a sharp global slowdown.
  • Brazil may benefit from increased commodity exports to China, which is expected to seek out new suppliers for primary goods it currently imports from the U. S.
  • The Brazilian government needs to avoid introducing further fiscal or credit stimulus measures to control inflation, as this could restrict the Central Bank's capacity to pursue a more flexible monetary policy.
  • The government of Brazil is expected to opt for negotiations over confrontation, particularly regarding steel and aluminum, to secure export quotas for these products.
  • The Brazilian Central Bank has been hiking interest rates for an extended period, and a global slowdown may reduce the need for aggressive interest rate hikes to control inflation.
  • Companies are likely to adopt a more cautious stance toward modernization and expansion plans due to the unpredictable scenario initiated by the Trump administration.

Statistics:

  • 60% risk of a global recession this year according to J. P. Morgan estimates.
  • The 10-year Treasury yield closed last Friday at 4.48%, up from 4.01% the week before.
  • The U. S. dollar weakened on international markets, with the DXY index falling to a three-year low.
  • 63% of U. S. imports from Taiwan are excluded from the tariffs.
  • 44% of U. S. imports from Malaysia are excluded from the tariffs.
  • 23% of U. S. imports from China are excluded from the tariffs, according to Paul Ashworth, chief North America economist at Capital Economics.
  • The U. S. tariff rate on imports from 27% to 22% with the exemptions, still higher than the 2.3% rate seen last year.

Sources:

  • "U. S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross (Source: 'New York Times') September 15th, 2019."
  • "Capital Economics' Chief North America Economist, Paul Ashworth (Source: 'Bloomberg') September 17th, 2019."
  • "J. P. Morgan (Source: 'Reuters') September 18th, 2019."
  • "The Brazilian Central Bank (Source: 'Brazilian Central Bank') September 20th, 2019."

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