LIVE MARKETS-"Tariff man is coming" - brace yourself

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"TARIFF MAN IS COMING" - BRACE YOURSELF

In case you've been distracted by central bank meetings or Big Tech earnings, Berenberg is here to remind us that Team Trump will likely impose a 25% tariff on imports from Mexico and Canada on Saturday, lacking any last-minute deal.

"Tariff man is coming," warns Holger Schmieding, an economist at the German bank. He also recalls that a universal tariff, starting with a low 2.5% rate and progressively increasing over time, could be in the works too.

So, what are the potential implications?

According to Schmieding, tariffs would raise prices for consumers and add to the costs of imported inputs, ultimately impairing the long-term growth potential of the U.S. economy.

"The damage to US growth would initially be small. While consumers would have less purchasing power, some foreign suppliers would shift production to the US. But the damage to growth would get worse over time."

And what's more, policymakers are unlikely to come to the rescue.

The economist calculates a 25% tariff on Mexico and Canada could lift the U.S. price level by around 0.4%, strengthening the case for the Fed to stay on hold. A 10% universal tariff could force the central bank to hike rates by mid-year instead, while for the euro zone that could cut growth by 0.5 percentage points, providing an argument for the ECB to cut rates.

All in all, Schmieding believes Trump will ultimately stop short of measures equivalent to a 10% universal tariff.

"Of course, we need to brace ourselves for a series of headline-grabbing measures and noisy negotiations first."

(Danilo Masoni)

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