US tariffs impact

In his latest weekly insight, Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management, he looks at the impact of US tariffs on the US, European, UK, and Japanese economies.

• US tariffs impact: The average global tariff is approximately 18%, and on this basis, RBC BlueBay thinks that US growth will slow to around 1% for the next several quarters, whilst inflation jumps to approximately 5%. RBC BlueBay continues to believe that it will be hard for central banks to respond by easing rates, and therefore the rally in bond yields appears overdone.
• European outlook: In Europe, RBC BlueBay also sees prospects for slower growth and higher prices, as the EU retaliates to Trump’s tariffs. As in the US, the firm doubts that the ECB will be able to deliver much by way of monetary easing.
• UK economy: The UK situation is more challenged, and RBC BlueBay strongly senses that the Bank of England would like to cut rates if it can. However, the firm thinks that cutting rates in the UK would be a policy error and that CPI will be up around 4% this summer.
• Japan-US relationship: In Japan, there was disappointment at an elevated tariff, when policy officials had been hoping for more favourable treatment by the US administration. Ultimately, RBC BlueBay won’t be surprised to see Japanese tariffs reduced, given the desire in Washington to maintain a close relationship with Tokyo, and considering Japan’s strategic importance to the US, as it faces up to China. 
• Tariff outlook: Looking further ahead, RBC BlueBay expects that ultimately, the US administration will pivot away from tariffs via executive orders, to a universal tariff legislated through Congress, which might sit at 10%, but which will only be enacted much later this year