The big news for investors on Thursday was Washington’s confirmation that steel and aluminium products reaching the US from Europe, Canada and Mexico – all important allies – would be subject to trade tariffs. Foreign leaders raged against the decision and announced plans for immediate retaliation. On Tuesday, Washington had already announced tariffs on $50 billion worth of Chinese goods.
In spite of what, economically speaking, is fairly serious news, foreign exchange markets were surprisingly calm on Thursday, although this perhaps says more about the imminent approach of the biggest piece of economic data of the month – US non-farm payrolls – than it does about the current temperament of investors. Rarely will investors enter large or important positions in the lead-up to big events.
The most significant currency moves on Thursday were in the Australian dollar ($0.754), New Zealand dollar ($0.6985), Indian rupee (₹67.11) and Japanese yen (¥109.2), all of which lost 0.5 percent against the US dollar in the eight or so hours following the announcement on tariffs; the euro ($1.167) lost 0.3 percent.
Rather than impeding the US dollar, euro or Chinese yuan, a global trade war is likely to most effect growth-sensitive currencies from smaller or moderately sized economies, which, among the G10, would include AUD, NZD, CAD, SEK and NOK. The Canadian dollar might be hit particularly hard due to Canada’s position as the number one supplier to the US of steel and aluminium products, and because a significant portion of its value hangs on the renegotiation of NAFTA, something that now appears more complicated; although, it should be noted that the “loonie” received a considerable boost on Wednesday from the Bank of Canada.
US tariffs were described on Thursday by Canadian Prime Minister Justin Trudeau as “an affront to…the thousands of Canadians who have fought and died alongside their American brothers in arms.”
“This is a bad day for world trade,” said European Commission President Jean Claude Juncker.
“Mexico profoundly regrets and condemns the decision,” said a statement from Mexico’s economy ministry.
For all his faults, it can at least be said of President Trump that he has stuck to his guns in regard to trade. In 2016, prior to his victory over Hillary Clinton, Trump campaigned against “unfair trade” and pledged to get tough with trading partners. This is what Americans voted for.