The potential trade war that has been worrying Wall Street since President Donald Trump took office in January 2017 is getting closer to becoming reality, one which could rattle financial markets.
In their latest “Liquid Insight” note, Bank of America Merrill Lynch global economists Aditya Bhave and Ethan Harris dismiss the notion that U.S. tariffs already imposed on several trading partners are merely negotiation tactics.
“We are more concerned,” they write. ”We see the potential for trade tensions to escalate to a trade war.”
Tensions did escalate over the weekend when Trump left the Group of 7 summit meeting early and, after agreeing to sign the group’s communique, refused to do so. In the communique the six remaining nations of the G7 — Canada, Britain, France, Italy, Germany and Japan — agreed on the need for a “free, fair and mutual beneficial trade” and to “strive to reduce tariff barriers, non-tariff barriers and subsidies.”
(Related: The Stock Market Doesn’t Want a Trade War)
The U.S. has already imposed 25% tariffs on steel imports and 10% tariffs on aluminum imports and has threatened to impose 25% tariffs on $50 billion worth of Chinese imported goods later this month.
Its trading partners are reacting. Canada, which hosted the G7 meeting, said it will impose tariffs on more than almost $13 billion worth of U.S. imports, including 25% tariffs on imported U.S. steel products and 10% tariffs on more than 80 U.S. products. Canada “will not be pushed around,” said Canadian Prime Minister Justin Trudeau.