TRUMP THREATS LEAVE WALL STREET UNFAZED

But damage can get serious if tensions cause businesses to put off capital spending and investment decisions, says Deutsche Bank

PRESIDENT Donald Trump’s zeal for tariffs has yet to derail the global economic outlook. While Trump has sown confusion and frustration among fellow political leaders, economists at most Wall Street banks are barely changing their forecasts for solid global growth this year as they estimate only modest fallout from a skirmish over commerce.

Take Trump’s 25 per cent steel tariffs. After stripping out food and energy, consumer prices were poised to rise by three basis points in response, said Goldman Sachs Group Inc in a research note on Monday.

The worry remains that Trump may just be getting started. If the president delivers on all his tariff threats, US$475 billion (RM1.89 trillion) in goods would be affected, and core inflation would speed up by about 15 basis points, according to Goldman.

That’s still a small increase, but one that might get the attention of the Federal Reserve (Fed), which could spur more aggressive policy tightening.

“The impact of tariffs on US$50 billion here and there, on its own, is relatively limited,” said Torsten Slok, chief international economist at Deutsche Bank AG.

“The real danger continues to be the uncertainty about what’s next.”

The damage could get serious if trade tensions sap business confidence, causing executives to put off capital spending and other investment decisions, he said.

“You have a lot of conversations with people who are saying, ‘Is my industry next?’” said Slok.

The threat of a global trade war was “no longer a tail risk”, he added.

The International Monetary Fund (IMF) has warned that a trade war could undermine the strongest global upswing in seven years.

“Everybody loses in a protracted trade war,” said IMF spokesman Gerry Rice last week.

Bloomberg Economics estimates a trade war would cost the global economy about US$470 billion by 2020 — roughly the size of Thailand’s economy. That projection assumes the United States hikes import costs by 10 per cent, and the rest of the world retaliates in kind.

For now, Trump’s trade assault hadn’t severely dented confidence among American businesses, according to the Fed’s Beige Book, which polls firms across the US.

While some respondents “noted some concern about the uncertainty of international trade policy”, outlooks for near-term growth remained “generally upbeat,” last month’s Beige Book reported.

Meanwhile, in Mexico City, Mexico will impose a 20 per cent tariff on US pork imports in retaliation to Trump’s metals tariffs, say sources.

“It’s a 20 per cent (tariff) on legs and shoulders, fresh and frozen... with bones and without bones,” said Heriberto Hernandez, president of Mexico’s leading pork producers association OPORPA, following a briefing earlier on Monday with Economy Minister Ildefonso Guajardo and his team.