Raymond James’ Jeffrey Saut is a noteworthy long-term bull on Wall Street. However, recent fears of a trading war has led him to suggest the Trump tariff plans could be a “black swan event” for stocks.
On March 1, 2018, President Trump revealed his plan for a 25% tariff on foreign steel and aluminum. The tariff could be implemented as early as this week. The news shook the markets, causing the Dow Jones and S&P 500 Indices to fall 3% and 2% last week, respectively. Overall, the plan is aligned with his campaign promises to shield U.S workers from the global economy.
President Trump has stated the reason for the tariff is to strike back against massive US trade deficits over the past many decades. However, the president seems to focus on the European Union initially, who he sees as a barrier to the success of U.S companies. The heated exchange came as the European Union denounced the tariffs plans and threatened to retaliate with their own set of tariffs against U.S. goods.
European car manufacturers like BMW (OTC Pink: BMWYY) and Volkswagen (OTC Pink: VLKAF) are among the companies that would suffer most from a steel and aluminum tax. The European Union shipped over 6 million cars abroad in 2016, and the U.S received over a million of them. Many of the cars are also manufactured in the U.S, and then shipped abroad. This represents billions of dollars of manufactured goods leaving the United States.
The announcement of the tariff has caused a rift among Trump’s supporters. Former Reagan official and Republican economist Larry Kudlow critiqued the president’s decision in a document released Saturday.
Kudlow notes that the tariffs help out the 140,000 people employed in the U.S. steel industry, but it comes at the cost of risking 5 million manufacturing and related jobs that rely on steel. Kudlow also notes that U.S. consumers will also take a hit.
“In fact, tariff hikes are really tax hikes. Since so many of the things American consumers buy today are made of steel of aluminum, a 25% tariff will likely get passed on to consumers at the register. This is a regressive tax on low-income families.”
Investors fear that the tariffs may ignite a global trade war, and potentially send the market plunging. Ultimately, Saut seems to think this is just a temporary setback, and earnings growth could continue to stimulate the market. Despite this, Saut has also stated “I am not going to step in here and buy a falling knife.”
Collaboration By: Frank Marino-Moore
