For now, many expect Trump to tap the International Emergency Economic Powers Act to start with a 10% duty later in the year. The U.S. doesn't export that much to Europe, limiting the potential retaliation to a handful of goods like Harley-Davidson motorcycles or whiskey.
In this scenario, the economic hit to the region could be limited.
Andrew Kenningham, chief Europe economist at Capital Economics, estimates a 0.2% hit to the region's GDP if Trump levies a blanket 10% tariff.
Germany's auto sector could face a harder time. Trump has complained about Germany's large trade surplus and specifically its auto sector, which tends to design and make cars at home but sends them to the U.S. for final assembly. Though the sector could ride out a 10% tariff, Kenningham says German auto makers would have a harder time absorbing a 20% tariff. They would probably have to raise car prices, which could dent their sales to the U.S. by 50%., resulting in an additional 0.2% hit to Germany's GDP.
Hitting Europe with tariffs would probably rattle markets, Treyz says. For now, Pantheon Macroeconomics economist Claus Vistesen expects the European Central Bank to cut interest rates less than expected as it waits to see the scope of Trump's tariff battle.
The situation with Mexico is even trickier. While Trump has proposed 200% tariffs on cars made in Mexico, analysts say placing tariffs on Mexico would put the U.S. in violation of the U.S.-Mexico Canada Trade Agreement that was one of the hallmarks of the first Trump term.
Also problematic: U.S. companies have invested aggressively in Mexico to diversify production. That could create a loud lobbying pushback against the tariffs. Analysts expect the administration to use saber-ratting about a tariff to push President Claudia Sheinbaum to impose new immigration rules at the border -- helping Trump make progress on another priority, Treyz says.
Mexico's economy could be in for a tough period, with potential deportations driving up unemployment and the Chinese investment powering Mexico's growth potentially coming under increased scrutiny. The iShares MSCI Mexico exchange-traded fund (ticker: EWW) is down 25% this year.
Nuveen Chief Investment Officer Saira Malik favors U.S. stocks, especially more domestically focused companies that are better insulated from tariffs, and is wary of making any foreign bets.
Others are also cautious. "Sometimes you just have to wait," said Ian Shepherdson, chief economist at Pantheon Macro, in a briefing. "The potential policy changes are quite gigantic -- or it could be a huge bluff."
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 15, 2024 01:00 ET (06:00 GMT)
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