Yet the United States continues to hold some of the highest tariff peaks. This decision comes in the shadow of ongoing legal challenges related to the International Emergency Economic Powers Act (IEEPA). This decision is indicative of the country’s larger trade strategy. Its focus on maintaining economic stability as geopolitical turmoil increases, particularly in the Middle East. These effective tariff rates are projected to remain elevated at least through 2025. This further entrenches the notion that US tariffs are a fact of life that we must accept in our economy.
Legal challenges related to tariffs promulgated under the IEEPA have not stopped US policymakers from seeking a hard-nosed trade approach. Escalating geopolitical tensions have made it a dubious time, nationally and in the implementation of tariffs, to pursue a policy such as protectionism. As tensions between Iran and Israel have risen, investors have fled to safety. Consequently, we are experiencing extreme volatility in foreign exchange markets.
Currently, investors are closely monitoring Iran’s potential retaliation against Israel’s recent military actions. The ongoing chaos has created an air of unpredictability, forcing those in the market to be more tentative. Dealers around the globe are itching to hear from Iran. They’re laser-focused on forthcoming US sentiment data, which is likely to provide further clues on economic conditions.
The increased risk aversion is showing up even in currency markets. The British Pound (GBP) has experienced extreme Dollar strength recently. Consequently, the GBP/USD has dropped under the 1.3550 level. On Friday in the early European session, this pair was trading near 1.3530. Mounting global uncertainties played a huge role in driving down currency valuations.
At the same time, the Euro (EUR) has been under attack as EUR/USD continues to languish right around 1.1550. Retail traders are responding to the opportunities and risks presented by a complex economic environment further shaped by major geopolitical events. This increased risk-off sentiment in the markets is pushing the fall. The euro’s move lower after trading between multi-year highs like 1.25 and 1.40 in 2017 is reversal of drastic change in market sentiment.
Given these prevailing realities, trade deals celebrated by the Administration or governments of other countries are more and more being considered “largely symbolic.” International relations and domestic economic policy are very complex. Yet they continually misdirect the debate on global trade, drowning out the positive impacts of smart global trade agreements.