Currencies and Protectionism

Currencies and Protectionism

 

There is no question, if the Trump Administration’s steel and aluminum tariffs lead to carefully-targeted tit-for-tat retaliations against American products around the world, the resulting trade war scenario would be terrible for the global economy.  Many analysts have dismissed this escalating protectionist future as unlikely, saying that cooler heads are likely to rein in the President’s impulsive tendency, particularly since the higher tax duties are unlikely to affect his stated target: China.

 

It’s more likely either that the tariffs will not be imposed at all, or that Europe, South Korea, Canada and Mexico will be quietly granted exclusions, preventing those countries from imposing retaliatory tariffs on American exports.

 

But is there any reality check for this calming scenario?  One place to look is at the global currency markets, whose traders closely monitor the trade winds and make their currency pricing decisions based on whether various economies will be supported or disrupted by changes in the overall trade flow.

 

Based on current market prices, these traders seem to be expecting little to no global fallout.  Indeed, the South Korean won, the Taiwanese and Singapore dollars, which are all very sensitive to global trade flows, are trading near their strongest levels against the dollar in more than three years.  In fact, the global economy—and world trade—is expanding at the fastest pace in six years.

 

This is certainly a story worth keeping an eye on, since global trade is a complicated and somewhat fragile network of cooperation.  But it appears that the smartest people in the trade market are currently not worried, which probably means we shouldn’t be either.

 

Source:

 

https://finance.yahoo.com/news/analysis-investors-eye-currencies-those-most-risk-trade-124016461–finance.html

Post by Bob Veres

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