Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: And now onto today's show.
Speaker: The following podcast was recorded for publication on the 25th of April, 2024 by HSBC Global Research.
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Speaker: Just search for The Macro Brief.
Speaker: Hello and welcome to the Macrobrief.
Speaker: I'm your host today, Aline Van Dyne, and today we'll be looking at the US.
Speaker: So there's less than seven months to go until Americans head to the polls to elect the next US president.
Speaker: International trade is among the issues candidates have already been talking about, but how could campaign trail comments translate into practice?
Speaker: And what could it mean for economies around the world?
Speaker: To find out, let's speak to Shanela Rajanayagam, our trade economist.
Speaker: Shanela, let's start with a look at where we are now because there is already quite a protectionist stance in the US.
Speaker: Hi Elaine, that's right.
Speaker: You know, US trade policy has been quite protectionist, especially since the former Trump administration.
Speaker: But really that has continued under the current Biden administration as well.
Speaker: Most of Mr Trump's previous tariffs still remain in place.
Speaker: And indeed, Mr. Biden recently announced intentions to actually lift steel tariffs further on Chinese imports.
Speaker: So as it stands now, it looks like it will be a race between President Biden and former President Donald Trump.
Speaker: And polls suggest it will be a close one.
Speaker: So what has Mr. Trump said about trade so far?
Speaker: What additional measures has he said he will implement?
Speaker: That's right.
Speaker: So it is shaping up to be a pretty close race.
Speaker: And Mr. Trump has made a number of comments already on the campaign trail regarding trade.
Speaker: And these are quite sweeping measures.
Speaker: So, for example, he said that he'll look to raise tariffs on China to 60 percent.
Speaker: He'll look to implement a universal baseline tariff of 10 percent on imports from all other markets.
Speaker: He's also talked about increasing tariffs on cars made by Chinese companies in Mexico to 100 percent.
Speaker: And he's also mentioned revoking China's most favoured nation status.
Speaker: And this is amongst a range of other measures he's also announced.
Speaker: So Shanela, can he actually implement these policies or is this dependent on the Republican Party gaining control of Congress?
Speaker: Yeah, that's a good question because trade is typically controlled by Congress.
Speaker: But as we saw last time around, the president does have considerable unilateral authority to actually lift tariffs off his own accord.
Speaker: And so it could very well be the case that this time around, if he is reelected, he would look to do the same thing.
Speaker: So making use of various statutes from the different trade acts, such as national security or unfair trading practices to actually lift those tariffs unilaterally.
Speaker: So let's say we are in a scenario where these tariffs are implemented.
Speaker: What could the economic impact be?
Speaker: So what Mr Trump has announced this time around is far more sweeping than what he implemented last time.
Speaker: So we could expect that the economic consequences would also be more damaging.
Speaker: In terms of economic estimates, the German Economic Institute recently estimated that
Speaker: If the new tariffs were implemented, U.S. GDP could be around 0.5% lower than the baseline in the long run.
Speaker: And there will obviously be consequences for world economic growth as well.
Speaker: And clearly there will also be some price implications.
Speaker: We ourselves estimate that these new tariffs could push up U.S. consumer prices by around 2% as an upper bound.
Speaker: And that's roughly in line with what some other commentators are saying as well.
Speaker: In terms of sectoral impacts, this will clearly impact the more import-dependent sectors.
Speaker: So things like computers, autos, textiles, electrical machinery will all be expected to face the brunt of these new tariffs.
Speaker: And what about this focus on China's most favoured nation status?
Speaker: What would the impact be of a change there?
Speaker: That's right.
Speaker: So if Mr. Trump does decide to revoke China's most favoured nation status,
Speaker: that would essentially allow the US to raise tariffs on Chinese imports over and above what it's committed to at the World Trade Organization.
Speaker: So this means that tariffs on goods such as smartphones, laptops or key imports from China, which are currently duty free, would face tariffs of about 35% based on current non-MFN rates.
Speaker: It is important to note, though, that it is likely that Mr. Trump would require congressional approval to actually revoke China's MFN status.
Speaker: So, Shanela, as we said when we started, the general backdrop is quite protectionist.
Speaker: So if Biden is re-elected as president, what does that mean for trade as well?
Speaker: Could there be further protectionist measures?
Speaker: So if Mr Biden is re-elected, we essentially expect more of the same.
Speaker: But we do think that trade protectionism and trade policy uncertainty will still continue.
Speaker: As we have seen, Mr Biden has already gone further than Mr Trump on several trade policies, for example, in terms of implementing tech export controls on China, and also in terms of restricting certain US tech outbound investment.
Speaker: And of course, we already mentioned his announcements regarding steel tariffs.
Speaker: So
Speaker: It could very well be the case that this sort of protectionism will still continue.
Speaker: Mr Biden would likely continue to take a tough stance against China.
Speaker: And he's also been a bit ambivalent when it comes to free trade deals.
Speaker: So we're not really expecting any comprehensive liberalisation if he is re-elected.
Speaker: And Shanella, just remind us what the global trade backdrop is.
Speaker: Has there been a full recovery in trade?
Speaker: Not yet.
Speaker: So we are clearly operating in very challenging times when it comes to global trade.
Speaker: There's ongoing disruption in the Red Sea and we still haven't seen that sustained recovery in world trade, though there are some green shoots that are appearing.
Speaker: You know, trade still remains relatively resilient, but there's a while to go before we see a more sustained recovery.
Speaker: Shanela, thanks so much for the updates.
Speaker: Thank you for having me.
Speaker: So staying with the US elsewhere in global research, the repricing of US rate cuts has played a big role in three of the key reports we've published this week.
Speaker: Economists Chris Hare and Ryan Wang have revisited a report they published back in November outlining what the Fed, the European Central Bank, and the Bank of England need to see before cutting interest rates.
Speaker: Our central case is still for each of these central banks to start cutting in June.
Speaker: but we see the biggest risk of a delay from the Fed.
Speaker: We'll find out more when the Fed meets next week.
Speaker: Surprisingly, the repricing of Fed rate cuts has not taken a huge toll on emerging market assets.
Speaker: So why is that?
Speaker: Murat Olgan, our global head of emerging markets research, says the resilience reflects the fact that the macro backdrop no longer impacts all of emerging markets in the same way.
Speaker: So when it comes to investment strategy, Murat says the focus should be on individual countries with solid stories.
Speaker: and in the currency markets dara ma head of fx strategy in the u s says the dollar can extend its rally though gains from here may be hard to come by dara argues that existing yields could push the greenback higher and geopolitical tensions and risk off elsewhere could also provide support
Speaker: If you have any questions for Chanel or about any of the other reports that we've mentioned today, please email us at askresearch at hsbc.com.
Speaker: So that wraps up another edition of the Macro Brief.
Speaker: Thanks very much for listening and we'll be back again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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