Some tariff scenarios were floated yesterday

The WSJ late yesterday cited some ‘Trump advisors’ who offered little in the way of insight but outlined some of the possible outcomes on the weekend to consider:

• the administration appears undecided on whether to impose tariffs on all imports from those countries
• administration officials are preparing to opt for more targeted measures instead
• Trump is still likely to announce some sort of trade action by Saturday, but it may only affect steel and aluminum
• Broader tariffs could include major exemptions like oil
• administration could also announce new tariffs by Saturday, but with a grace period before they are implemented
• Some in administration question the legality of using International Emergency Economic Powers Act, especially in this case
• A Canadian official said negotiations were ongoing on creating a joint “North American fentanyl strike force.”

The lack of any real plan from the US administration this late in the game makes me highly confident that across-the-board tariffs are a bluff. The market is also priced that way with just 50 bps in Canadian easing priced in for the remainder of this year, despite BOC modelling showing that tariffs would cause a 2.5% contraction in GDP.

This article was written by Adam Button at www.forexlive.com.