Europe, a longstanding ally of the United States, is keeping a vigilant eye on potential U.S. protectionism that could impact global commerce. Under the leadership of President Donald Trump, the U.S. is advancing its "America First" agenda, which has recently included threats of imposing 25% tariffs on Mexico and Canada. These measures are part of a broader strategy targeting China with retaliatory trade actions. Markets worldwide remain on high alert as they await President Trump's next steps in his trade policy.
The proposed tariffs on Mexico and Canada are designed to exert pressure on Beijing, compelling the forced sale of ByteDance's TikTok. Sergio Ermotti, CEO of UBS, has expressed concerns that tariffs from a potential second Trump administration could significantly influence markets and contribute to inflation. The threat of tariffs comes at a time when global inflation has been cooling, largely due to the economic impacts of the Covid-19 pandemic and an energy crisis spurred by the war in Ukraine.
"Something that I've been saying for a while, inflation is much more sticky than we have been saying," – Sergio Ermotti
While the cooling inflation has offered some relief, Ermotti cautions that any new tariffs could disrupt this trend and hinder the anticipated decline in interest rates. He warns that such tariffs might exacerbate inflation rather than alleviate it.
"The [truth] of the matter is that we need to see also how tariffs will play a role in inflation." – Sergio Ermotti
The current economic environment has been shaped by various challenges, including the pandemic and geopolitical tensions leading to heated price growth. The energy crisis, driven by the conflict in Ukraine, has further complicated economic recovery efforts. Consequently, both the United Kingdom and the United States commenced their respective interest rate cutting cycles last year in an attempt to stabilize their economies.
"Tariffs will probably not really help inflation to come down. And therefore I don't see rates coming down as fast as people believe," – Sergio Ermotti