Trump Tariff Madness
Written on 4 April 2025 by
Because Trump is so unpredictable and we don’t know what the end result will be following tariff negotiations and retaliations (and perhaps counter retaliations) we can’t look far ahead with any confidence while he remains in office.
There are also Court challenges with Trump already being sued over the earlier 20% tariffs imposed on Chinese goods. This lawsuit contests Trump’s use of the International Emergency Economic Powers Act of 1977 to justify the tariffs on the basis that the law authorises asset freezes and similar economic sanctions but not tariffs.
We also don’t know what other mad policies the Trump regime will introduce but it seems sensible to expect that at least until the US mid-term elections at the end of next year there will be more shocks. There was a substantial swing (compared to November’s Presidential election) away from republican candidates in some US elections this week, which suggests Republicans will struggle to continue controlling both the Senate and the House after the mid-terms, which will seriously curtail the damage Trump can do.
Now that we have seen Trump’s initial salvo on tariffs and the market reaction we can consider the likely impact on the UK economy and in particular mortgage rates and the housing market.
My initial reaction is that whilst a tariff war can only be bad for the world economy, there are some trade-offs for the UK and the self-harm Trump is visiting on the US economy will be much greater than the impact on the UK.
Gilt yields have fallen further today after yesterday’s sharp fall and are now around 25 basis points lower following the tariff announcement. As well as equity markets, the oil price has fallen sharply in anticipation of weaker demand. The dollar has weakened and freight costs will probably fall in anticipation of less demand for containers.
It appears there will be little, if any, retaliation from the UK and hence, unlike in the US, upward inflationary effects should be very limited. On the other hand, more competition from suppliers less able to export to the US, lower oil and freight costs plus a stronger sterling against the dollar, should all help to lower inflation - which no doubt the Government will claim credit for.
A better outlook for inflation and a more challenging economic situation means that a cut in Bank Rate on 8th May now looks almost certain, instead of just a possibility, and equally important is the outlook for an acceleration of future cuts.
Many lenders are likely to cut mortgage rates next week and we can look forward more optimistically now to further falls over the course of the year.
The slowdown in property market activity following the Stamp Duty Land Tax increases this month should start to be mitigated as potential home buyers are attracted by lower mortgage rates, despite some people becoming more nervous about their job prospects.
Category:Ray Boulger
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