Federated Hermes ($631.1 billion AUM) shared outlooks on the impact of the tariffs in emailed commentary.
Damian McIntyre, head of Multi-Asset Solutions:
- A ramp-up in tariffs could increase inflation in the short run, especially if companies pass on costs to consumers. However, we’d view these price rises as a one-time inflation impact, rather than a sustained increase. These trade disputes have the potential to keep rates higher for longer in the near term, but we don’t expect them to have long-term implications for central bank policy.
- More broadly, many companies have already re-engineered their supply chains, and this week’s tariffs talks will only reinforce that trend. We believe companies will look to create and maintain robust global supply chains, while focusing on a multi-polar regional framework. [US president] Trump has notified the world that tariffs are a tool he’s willing and able to use. While this could prove to be a negotiation tactic, it has the potential to reshape global investing narratives, including the need for higher risk premiums by countries that he deems as not playing fair.
Chris McGinley, head of Trade Finance:
- Despite this week’s headlines, the impact of any trade war could remain localized, impacting only those countries directly involved. We believe South-to-South trade should remain largely unaffected. This is an area that’s more important than ever and, regardless of what happens in Washington, Brussels or Beijing, it still needs financing. If anything, we believe higher commodity prices and a stronger US dollar could help EM-to-EM trade in the long run.
James Cook, investment director for Emerging Markets:
- The 10% levy imposed on China exports was below the 25% imposed on Mexico and Canada. This discrepancy could signal a degree of caution in Trump’s approach to China.
- Perhaps the lower levy is just an initial bargaining chip for more pressing needs, such as Beijing’s support on Russia and Iran, halting the illegal trade of fentanyl, or the persuasive pull of his highest profile supporters who have significant manufacturing interests in China. While there’s considerable noise and uncertainty, we don’t see escalating trade tensions as a game changer in the prospects for the Chinese market. We stick to what we do know which is that, in our view, valuations are extremely cheap, and that Chinese equity markets are more than discounting the trade risk.
- At the same time, China has bigger fish to fry. The country’s main problem is not Trump but the domestic economy.