US: Is this still capitalism? – Commerzbank
|On Friday, Donald Trump returned to his favourite topic, tariffs. In response to the announcement of a big US technology company that it plans to move production from China to India, Trump threatened to impose a 25% tariff on its smartphone unless they are manufactured in the US for the US market. Although he had previously called for relocations to the USA pretty clearly, he had never before threatened to impose tariffs on individual companies, especially a US company. Unsurprisingly, shares of the company came under pressure on Friday, Commerzbank's FX analyst Michael Pfister notes.
No positive impact on the US dollar on the cards
"The scale of this threat is unprecedented. Until now, tariffs have affected companies indirectly, but in such cases, all companies are usually affected equally, depending on their production sites. In the case of tariffs on cars, at least one industry was generally affected. However, no company was directly targeted. Especially not a US company. In recent months, many analysts have argued that the tariffs will not be so bad because Trump tolerated companies shifting their production from China to other countries during his first term in office."
"It is unlikely that the US government's goal is for US consumers to feel the higher costs. Rather, the US government would probably prefer companies to relocate their production to the US and cover the higher costs themselves. A big US retail company has already learned that the government is not keen on passing on higher costs to consumers."
"If companies are to produce more expensively in future but are denied the opportunity to charge higher prices, they will have to cut their margins. This would affect their ability to pay dividends or buy back shares. In other words, the share prices of companies under pressure from the US government are likely to be lower in the long term. One may disagree with this from a political standpoint. But this is unlikely to have a positive impact on the US dollar, particularly given the current concerns surrounding US government bonds due to mounting government debt."
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