Tariffs and turmoil - markets react to Trump tariffs threat
LBS' Dr Joseba Martinez reflects on tariffs and the potential for trade disruption in the new Trump era
Earlier in the week (beginning November 25th) president-elect Donald Trump pledged, via social media, day-one tariffs of 25 per cent on imports from Canada and Mexico, and an extra 10 per cent on China.
Markets were shaken by the news, with Japan's benchmark Nikkei 225 Index and China's Shanghai Composite closing lower. Meanwhile, the UK's FTSE 100 opened down on the day before. Trump's tariff announcement also hit currencies. The Mexican peso weakened further against the US dollar Tuesday, and the Canadian dollar fell to its lowest level against its US counterpart since 2020.
London Business School's Joseba Martinez was quoted in Newsweek, commenting on the president-elect's plans to impose tariffs on products entering the US from Mexico, China and Canada.
Commenting on the stock market drop, Joseba Martinez, assistant professor of economics at the London Business School, told Newsweek that "trade protections like tariffs are generically bad for world GDP."
"Supply chains between the US, Mexico and Canada are highly interconnected, and these are big trade partners for the US, so taxes on these counties are particularly costly," he said.
Reflecting on the markets' future direction, Martinez added that it "depends on which faction of MAGA is ahead at any given time."
Pointing to the appointment of Scott Bessent as the next US Treasury secretary, he said that the stock markets will "love" that, as he is "more of an opportunistic capitalist."
However, Martinez said that the more salient policies like tariffs and deportations have gone forward, "the worse for the stock market from now on."
WTO predicts Middle East trade slowdown in 2025
Dr Martinez was also quoted in an article which has appeared in 'Arabian Gulf Business Insight'.
Lower oil prices, the potential for conflicts to escalate and the impact of a Trump presidency are factors supporting the World Trade Organization’s prediction that trade in the Middle East will slow down in 2025, experts have said.
In its latest Global Trade Outlook and Statistics report, the WTO said Middle East exports will grow five per cent this year but will slow to one percent in 2025.
The economists say imports this year will grow at a rate of nine per cent – the highest rate in the world in 2024 – but will decline by one per cent next year. GDP in the Middle East is forecast to grow four per cent in 2025, the report said.
The Trump factor
President-elect Donald Trump has promised tariffs of 10 and 20 per cent on imports from around the world and an even higher rate of 60 percent on Chinese goods.
The election promises are intended to improve America's trade deficit. Before Trump's last presidential term in 2016, the goods and services deficit was $480bn (about two and a half per cent) of US GDP. Four years later, when he left office, the deficit had grown to $653bn (about three per cent of GDP), despite his tariffs.
Dr Martinez said the tariffs proposed for next year are much higher than those in Trump's first term.
Martinez said that a further turn towards protectionism by the US will change the way that international trade is ordered and may encourage countries to engage in protectionist policies. This, he said, "will have further spillover effects for Mena and the rest of the world”.
