Head of Ford Mark Field has suggested that President Elect Donald Trump’s proposal of a 35% tariff on cars made in Mexico would hurt the US Economy. Donald Trump has previously criticised Ford for moving all of its North American car production to Mexico, where the wages are 80% lower than the US. It is becoming clear that much of Trumps policy is bringing big business and manufacturing back to the US shores.
What this does mean is that there could be a huge amount of disruptions for current businesses which could cause the Federal Reserve to hold off a rate hike. The trade agreements in place are not simple to re-negotiate and any aggressive changes introducing tariffs are cause for concern. In the long term it would be beneficial for any country to produce more goods domestically however it could be the case that global trade is to far down the line for change not to cause major damage. If Donald Trump does introduce a huge levy when he takes charge in January there could be a lot of USD volatility.
Janet Yellen and the Federal Open Market Committee were considered almost a dead certain to increase rates in December with market analysts believing there was an 80% chance. Now however with Trump looking to drastically change much of the domestic economic landscape I think the already apprehensive policy makers could hold off once more.
Even if there was to be positive date for the US in the coming few days (and there is a lot of releases) I think they will hold off until it becomes completely clear what Trump is planning. A key event this week will be when Janet Yellen Testifies before the congress as to the current state of the US economy. This could give us an indication of when the US will raise interest rates and has the capability to create swings in the USD’s value.
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