Trump Risks Ending Years of Disinflation, Ex-Fed Vice Chair Says

Economic

Forex

Summary:

(Bloomberg) -- US President Donald Trump’s trade war risks turning powerful influences that helped ease inflation over decades in the opposite direction.

“Some of the forces that helped the disinflation in the 1990s and the 1980s and the 2000s will be going into reverse,” Donald Kohn, a former vice chairman of the Federal Reserve, said on Thursday.

The dollar and European stocks fell after Trump announced 25% tariffs on auto imports and pledged harsher punishment for the EU and Canada if they join forces against the US. Investors worry that higher prices as a result of the tariffs may limit Fed interest-rate cuts.

US inflation slowed dramatically from the early 1980s, thanks in large part to aggressive Fed action under then-Chair Paul Volcker. Economists have also cited increasing globalization as a factor in stabilizing prices in the years that followed.

“We see already adverse supply shocks, and the threats of adverse supply shocks, from the tariffs threatened by the Trump administration,” Kohn told a conference in Cape Town. “The tailwinds that helped with the disinflation earlier are turning potentially into headwinds and that’s going to present some difficult decisions for the Fed.”

Kohn, a 40-year veteran of the Fed who left in 2010 and is now a senior fellow at the Brookings Institution in Washington, was speaking at an event hosted by the South African central bank to discuss inflation targets.

The widespread adoption of a numeric-inflation goal is also credited with contributing to lasting low inflation – outside of the post-pandemic period, when forecast errors led to a significant overshoot – alongside central-bank independence to get the job done.

Kohn warned that the Fed faced fresh challenges amid high budget deficits and public calls from the president to cut rates.

“Donald Trump has said he’s not going to fire Jay Powell, but he’s already advocated for lower rates,” Kohn said, referring to the current Fed chair who Trump privately discussed replacing during his first term in office. “Political pressure on the Federal Reserve is not going to be reduced at all.”

Source: Yahoo Finance

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Warren Takunda

Economic

The Pound recovered against the Euro and Dollar after U.S. President Donald Trump told reporters that next week he would impose a 25% import tariff on all vehicle imports.

The tariff would also apply to all vehicle components, leaving little scope for carve-outs. Trump said these tariffs were non-negotiable.

The developments come ahead of the April 02 "Liberation Day" tariff announcements, which are anticipated to be the most severe of the President's two terms in office.

The Pound traded weaker through the mid-week session, having been knocked by a softer-than-forecast set of inflation data. But it recovered late in the day when the tariff headlines from the White House rolled in.

The price action suggests it holds a status as a relative hedge against tariff news: the Pound-to-Euro exchange rate recovered from a low of 1.1924 to the cusp of 1.20 on Thursday.

The Pound-to-Dollar exchange rate has recovered from 1.2870 to 1.2905.

"The Sterling backdrop looks relatively well supported versus the EUR, not least when combined with the fact that the UK looks less exposed than the eurozone to tariff concerns," says Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets.

"Given that UK goods trade remains relatively balanced and or Trump appears to have a favourable view of the UK, relative to his antipathy as regards the EU, suggests an extension in the EUR/GBP downtrend," he adds.

On Wednesday, Trump announced, "We’re going to be doing a 25% tariff on all cars that are not made in the United States. We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they’ve been taking over the years."

Vehicle tariffs would be collected starting at 12:01 a.m. Washington time on April 03.

Pound Sterling Recovers Against Euro & Dollar, Helped by Tariff News_1

Above: GBP/EUR has met and exceeded our Week Ahead Forecast target.

The White House said the tariffs would apply not only to fully assembled cars but key automobile parts, including engines, transmissions, powertrain parts and electrical components. Tariffs on parts will take effect no later than May 3.

These latest tariffs will be particularly harmful for Mexico, Japan, Canada and the EU, which account for the largest exporters of vehicles and components to the U.S.

Foreign exchange markets are relatively calm following the developments, suggesting heightened anticipation of the April 02 tariff calls, which will be far more wide-ranging and net many more countries.

For now, the FX market is betting tariffs are a negative for the Dollar as they will impose greater costs on U.S. consumers, while Trump's ad-hoc policy approach, which is primarily conducted through social media, is hammering consumer confidence.

On Tuesday, the Conference Board said forward-looking expectations amongst consumers had plummeted to a 12-year low, taking it to levels consistent with recession.

Pound Sterling Recovers Against Euro & Dollar, Helped by Tariff News_2

Although the Dollar looks to be struggling under tariffs, some major investment banks are holding out for gains in the second quarter, betting that the pendulum will swing once again.

Analysts at Citi and JP Morgan are the latest to think the U.S. currency could be set for a rebound in the coming weeks as the U.S. massively expands its tariff programme on April 02.

"We maintain our forecasts for a USD rebound in Q2," says Daniel Tobon, a currency analyst at Citi. "Tariff risks look underpriced and we expect USD undervaluation to correct on a hawkish April 2 announcement."

"A 10% pts increase in tariff rates would result in 5% strengthening in the broad dollar index," says Arindam Sandilya, an analyst at JP Morgan.

There is also uncertainty as to whether or not the UK could be in for a shock as the April 02 tariffs will target so-called non-trade barriers such as Value Added Tax.

Trump says VAT is unfair to U.S. exporters, which brings the UK into scope for tariffs on April 02.

Until now, the assumption has been that tariffs aren't really a concern for the UK, given its balanced trade in goods with the U.S. But the unpredictability of the Trump White House could soon challenge that assumption.

If the Pound is proving a hedge against tariff noise now, that could change next week if the UK's already poor economic growth outlook takes a knock from unexpectedly large tariffs.

Source: Poundsterlinglive

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Warren Takunda

Commodity

Gold prices rose on Thursday as U.S. auto tariffs ratcheted up global trade tensions ahead of an April 2 deadline for reciprocal tariffs from the world's largest economy.

Spot gold was up 0.3% at $3,028.65 an ounce, as of 0650 GMT. U.S. gold futures gained 0.5% to $3,036.10.

U.S. President Donald Trump on Wednesday unveiled a 25% tariff on imported cars and light trucks starting next week, widening the global trade war.

Investors feared that Trump's reciprocal tariffs, expected to take effect on April 2, might fuel inflation, slow economic growth and heighten trade tensions.

Concerns over Trump's tariff policies catapulted gold to a record high of $3,057.21 on March 20.

Aakash Doshi, global head of gold at SPDR ETF Strategy, expects gold will breach $3,100 in the second quarter and "the market could potentially push another 8%-10% higher by end-2025 if the current macro and physical market tailwinds sustain for the yellow metal."

Goldman Sachs on Wednesday raised its end-2025 gold price forecast to $3,300 per ounce from $3,100, citing stronger-than-expected ETF inflows and sustained central bank demand.

Investors await the U.S. personal consumption expenditures data, due on Friday, which could shed more light on the U.S. interest rate path.

"The March high near $3,057 is immediate resistance for gold prices. The $3,100 figure follows next," said Ilya Spivak, head of global macro at Tastylive.

Last week, the U.S. central bank held benchmark interest rate steady, but indicated it could cut rates later this year. Non-yielding bullion tends to thrive in a low interest-rate environment.

President Donald Trump late Wednesday announced plans for auto industry tariffs that could climb as high as 25%, widening the global trade war he kicked off this year.

Minneapolis Federal Reserve Bank President Neel Kashkari said that while the U.S. central bank has made a lot of progress bringing inflation down, "we have more work to do" to get inflation to the Fed's 2% target.

Spot silver rose 0.1% to $33.73 an ounce, platinum fell 0.4% to $970.34 and palladium lost 0.5% to $963.03.

Source: Reuters

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George Anderson

Economic

Forex

(March 27): US President Donald Trump suggested further tariffs would be imposed on the European Union (EU) and Canada if they work together “to do economic harm” to the US.

In a late night Truth Social post, Trump said large-scale tariffs “far larger than currently planned” would be placed on them in such a scenario. The euro briefly pared a small gain and the Canadian dollar dipped.

“If the European Union works with Canada in order to do economic harm to the US, large-scale tariffs, far larger than currently planned, will be placed on them both in order to protect the best friend that each of those two countries has ever had!” Trump posted.

Trump signed an order on Wednesday imposing a 25% tariff on auto imports, escalating a trade war designed to bring more manufacturing jobs to the US. The move sets the stage for more tariff actions next week, including promised so-called reciprocal tariffs on April 2, potentially deepening tensions with key trading partners. Other industry-specific tariffs are also in the works, including on lumber, semiconductors and pharmaceutical drugs.

The EU is preparing countermeasures in response. France has urged the European Commission to consider using its toughest trade weapon — the anti-coercion instrument — for the first time, Bloomberg reported earlier.

Trump’s latest comments come after Canadian Prime Minister Mark Carney visited France and the UK last week on his first foreign trip to pitch a closer alliance with European allies.

“I want to ensure that France and the whole of Europe works enthusiastically with Canada, the most European of non-European countries,” Carney said in Paris.

Source: Theedgemarkets

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Warren Takunda

Economic

For the first time since taking office, EU Trade Commissioner Maroš Šefčovič will travel to China on 27 and 28 March to meet China’s vice premier He Lifeng, Minister for Customs Sun Meijun and Minister of Commerce Wang Wentao. Maroš Šefčovič's visit to the Asian giant, against a backdrop of tense trade negotiations with the Americans, will be closely scrutinised. Here are five things he's looking to achieve from his trip to China.

1.Send a signal to Washington

“The EU wants to signal that the harder they hit, the more they could push the Europeans closer to China,” Victor Crochet, a China expert with law firm Nishimura & Asahi told Euronews. With the US imposing tariffs on aluminium and steel, and further tranche of reciprocal tariffs schedules to begin applying on 2 April, the EU may seek closer ties with China, the second-largest economy in the world after the US.

This could be good news for the Asian giant, which is also affected by US tariffs. “China is the one which needs the EU most because of its trade surplus vis-a-vis the EU. However, it will not show it because the EU is also in a complicated situation due to the US,” according to Alicia García Herrero, expert from the Bruegel think tank.

2. Re-open diplomatic dialogue

The previous Commission left relations with China strained following a row over Chinese electric vehicles (EVs) culminated in the EU imposing 35% tariffs on Chinese imports, and China retaliating with tariffs on European brandy and Cognac. Since Covid, the EU has also been working on reducing its dependencies on China, notably on critical raw materials.

The new strategy is to “derisk through diplomacy", according to Maria Martin-Prat, the Commission's Deputy Director-General for Trade. “We want to base our relationship with China on a combination of engagement but also protection,” the EU official told an event in Brussels ahead of Šefčovič’s trip. “We have left behind any idea of a smooth and equal relationship,” she acknowledged on market distortion and subsidisation.

Herrero said that Šefčovič will explore options arising from poor relations between the EU and US, but will also arrive with a portfolio EU investigations over unfair trade practices with which to warn China.

3. Push China to act on its overcapacities

Chinese overcapacities are Europe's nightmare. “China is doing nothing to address it,” Maria Martin-Prat claimed. And with US tariffs on Chinese products, there is a risk of seeing China divert more production towards the European market.

Steel, cement and wood are among key exports from China to the US which could be redirected to European markets amid the current tariff storm. “Chinese demand for these products has fallen as a result of the halt in property construction,” according to Victor Crochet. Computers, EV’s and renewables, such as solar panels or wind turbines, are also on the list of Chinese overcapacities.

“To address overcapacities, the EU wants China to pass from a model based on business subsidies and exports, to a model based on its domestic market,” Crochet added.

4. Lift barriers to European companies

European companies gripe over barriers to doing business in China, with data transfers from European companies based in China to their overseas branches requiring a green light from the Cyberspace Administration of China (CAC). A temporary arrangement was found in 2023 between the EU and China to speed up the approval process, but as Herrero pointed out, "this is a major issue for European companies producing a lot of data whether it is financial or related to services."

5. Attract more Chinese investment

The EU wants to attract Chinese investments. “Europe is in a strong position here,” Sacha Courtial, expert from the Delors Institute told Euronews, explaining: "We're opening up our market on our terms, i.e. to create jobs in Europe and ask for technology transfers. That's the idea behind manufacturing of Chinese electric cars in Europe.”

Having already opened in Hungary, Chinese electric vehicle giant BYD is considering opening a manufacturing and assembling plant in Western Europe to avoid EU tariffs.

Source: Euronews

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Warren Takunda

Economic

Shares sagged Thursday in Asia, apart from China, after President Donald Trump announced he will slap 25% tariffs on imported cars.

Trump said he was raising duties on auto imports to encourage more manufacturing in the U.S., but the impact will be complicated since U.S. automakers and even foreign manufacturers with factories in the U.S. source many of their components from around the world.

Japan’s benchmark Nikkei 225 lost 0.6% to finish at 37,799.97.

Toyota Motor Corp. stock dove 2%, while Honda Motor Co. stock dipped 2.5%. Nissan was down 1.7%. Mazda Motor Corp. shares dropped 6%, while those in Subaru Corp. slipped nearly 5% and Mitsubishi Motors Corp. lost 3.2%.

Japanese Prime Minister Shigeru Ishiba has sought to persuade Trump to exempt Japan from the higher tariffs, and he reiterated his position Thursday.

”We strongly request that tariff measures not be applied to Japan,” he told reporters.

When asked about possible responses, he said without giving specifics: “All options are naturally subject to consideration.“

Ivan Espinosa, who will become chief executive at Nissan Motor Corp. April 1, told reporters earlier this week that the automaker was considering several scenarios as what Trump might do was “fluid.”

South Korea’s Kospi fell 1.4% to 2,607.15. Korean automakers also felt a chill from Trump’s announcement. Hyundai Motor Co.'s shares traded in Seoul lost 4.3% while Kia Corp.'s shares dropped 3.5%.

Shares in Greater China, apart from Taiwan, were higher. Hong Kong’s Hang Seng gained 0.5% to 23,605.67, while the Shanghai Composite index was up 0.2% at 3,373.75.

Chinese automakers and parts manufacturers have been expanding sales around the world, but not in the United States, so any impact from the tariffs announcement would be an indirect one.

But Taiwan’s benchmark, the Taiex, sank 1.4%.

In Australia, the S&P/ASX 200 dropped 0.4% to 7,969.00.

The S&P 500 sank 1.1% to 5,712.20 to break what had been a run of calmer trading. The Dow Jones Industrial Average swung from a gain of 230 points in the morning to a loss of 132 points, or 0.3%, closing at 42,454.79.

Weakness for Big Tech sent the Nasdaq composite to a market-leading drop of 2%, at 17,889.01.

The group of dominant stocks known as the “Magnificent Seven” has been at the center of the U.S. stock market’s recent sell-off, which earlier this month took the S&P 500 10% below its all-time high for its first “correction” since 2023. Big Tech had rocketed in earlier years amid a frenzy around artificial-intelligence technology, and critics said their prices rose too quickly compared with their already rapidly growing profits.

Nvidia fell 6% to bring its loss for the young year so far to 15.5%. It was the single heaviest weight on the S&P 500 by far.

Other AI-related stocks were also weak, including server-builder Super Micro Computer, which fell 8.9%, and power companies hoping to electrify AI data centers.

Tesla has been contending with additional challenges, including worries that political anger at its CEO, Elon Musk, will hurt the electric-vehicle maker’s sales. Tesla dropped 5.6% to extend its loss for 2025 to 32.6%.

Other U.S. automakers also declined after Trump said he would announce his tariffs on auto imports.

U.S. auto giants have already spread their production around North America following prior free-trade deals encompassing the United States, Canada and Mexico. General Motors sank 3.1%. Ford Motor went from an early gain to a loss and back before inching up by 0.1%.

So far, the economy and job market have appeared to remain solid despite the worsening moods of shoppers and businesses.

Orders for machinery, airplanes and other long-lasting manufactured products unexpectedly grew last month, when economists were forecasting a contraction. But a subset of the data seen as an indicator for investment by businesses flipped from growth to contraction. That could be a signal businesses are holding back on spending to see how tariffs play out.

In energy trading, benchmark U.S. crude lost 5 cents to $69.60 a barrel. Brent crude, the international standard, fell 6 cents to $73.73 a barrel.

In currency trading, the U.S. dollar declined to 150.40 Japanese yen from 150.54 yen. The euro cost $1.0769, up from $1.0754.

Source: AP

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Alexander

Economic

Forex

LONDON (Reuters) - Britain does not want to escalate a trade war with the United States and is working intensely with Washington to secure an exemption from tariffs, the country's finance minister Rachel Reeves said on Thursday.

U.S. President Donald Trump expanded his global trade war late on Wednesday when he unveiled a 25% tariff on imported vehicles, prompting criticism and threats of retaliation from affected U.S. allies.

"We are not at the moment in a position where we want to do anything to escalate these trade wars," Reeves told Sky News when asked if Britain would impose retaliatory tariffs against the U.S.. "Trade wars are no good for anyone."

She said an escalation of tariffs would be bad for Britain: "but it would be bad for the U.S. as well, and that's why we are working intensely these next few days to try and secure a good deal for Britain," Reeves said in an interview with the BBC.

"I recognise how important this is," Reeves added.

U.S. new levies on cars and light trucks will take effect on April 3, the day after Trump plans to announce reciprocal tariffs aimed at the countries responsible for the bulk of the U.S. trade deficit.

They come on top of duties already introduced on steel and aluminium, and on goods from Mexico, Canada and China.

Britain has hoped to avoid tariffs with the U.S., arguing that both countries report trade surpluses with each other - including goods and services - owing to measurement differences.

London is also trying to agree a tech-led deal with Washington that it hopes will potentially spare it the direct hit of tariffs on its own exports.