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Know when to hold 'em
- This week’s salvo of tariffs by the Trump administration raised the stakes for global trade partners, particularly those hit hardest in Asia and Europe. The EU tariff is to be set at 20%, with a carve out in some areas for now, such as semiconductors, lumber, and crucially for Ireland, pharmaceuticals.
- The choice for these countries now is to fulminate and retaliate, running the risk of a further escalation from the US, or hold fire and seek to negotiate. For now, institutional forecasters predict the greatest damage from unilateral US tariffs will be to the US economy.
- The question now is whether the global economy can absorb the impact of the isolationist turn by the US. The dollar remains the key currency for global financial transactions, involved in 90% of FX transactions and c.85% of swap market trades, according to the Bank for International Settlements.
- Therefore, the challenge for the other major economic blocs in Europe and Asia is to double-down on the rules-based global trade order, going it alone without the US, or seek to retaliate against the US and follow suit with each other. The first test will come soon for the EU.
- Turning to the week ahead, the data calendar is somewhat sparse on both sides of the Atlantic. In the US, CPI inflation data for March will be in focus. Headline CPI trended down to a low of 2.4% last September, but it has printed between 2.6-3.0% in the five months since. It stood at 2.8% in February.
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