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Trump’s tariffs will lead to higher prices in the shops, and weaker currencies for Canada, China and Mexico, explains Holger Schmieding, chief economist at Berenberg Bank.
Schmieding says
Taken at face value, such tariffs could raise the level of US consumer prices by c1% within a year if we assume that producers and distributors can pass on roughly 70% of higher import prices to consumers at a time of buoyant domestic demand. However, a depreciation of the Canadian, Mexican and Chinese currencies relative to the US dollar will likely absorb a significant part of that impact, perhaps up to half as a back-of-the envelope guess.
Trump’s tariff statement is probably merely the opening salvo of a series of tariff threats. But interestingly, he has tied his announcement of extra tariffs on the top three exporters to the US to specific complaints about immigration and drug trafficking. That seems to open the door for negotiations.
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