Hello there,
It’s a year to the day since U.S. President Donald Trump launched his “Liberation Day” tariffs. They’ve since been overturned and replaced with a temporary scheme that’s set to run out in July.
Billions of dollars in additional tax revenues have been raised but U.S. companies and consumers are paying the price and there has been little evidence of a boost to U.S. manufacturing employment or a reduction in the overall trade deficit.
It’s a sign of the times that the April 2 anniversary is passing with such little fanfare. The eyes of the world - and of financial markets - are trained instead on Iran and its chokehold on the global economy. Hopes for a swift end to the Middle East war and the reopening of the crucial Strait of Hormuz are fading after Trump vowed more aggressive strikes on Iran, sending oil prices back well over $100 a barrel.
Trump’s vague timeline to end the war is spooking investors but if he ends it quickly without a deal, he risks leaving Tehran with a stranglehold over Middle East energy supplies and Gulf Arab oil and gas producers badly exposed. Ultimately, as my colleague Samia Nakhoul’s reporting shows, Trump might stop the war but Tehran may continue. That leaves Gulf countries to shoulder the cost.
Globally, the war risks lower growth and higher prices. The head of the International Energy Agency, Fatih Birol, warned this week that Middle East oil supply disruptions will rise in April and begin to impact Europe's economy.
Five weeks into the conflict, we are getting the first real readout on how households and businesses dealt with the initial crunch. As my colleague Mike Dolan notes, so far, the real economy has taken things on the chin.
But it’s a difficult picture to parse, as Mike explains. With events unfolding day-by-day, there's very little immediate economic information beyond market sentiment, pricing or anecdotes. By the time reliable data on the economic impact eventually shows up, the crisis is often on the wane.
Even if you have the data, interpreting it can be difficult. Central banks have a trove of surveys, gauges and indicators at their disposal but all of them have blind spots, if not outright faults. That’s a problem as they contemplate whether to jack up interest rates to combat rising inflation or leave well alone. Something the Bank of Canada referenced in its minutes out this week: "They (Governing Council) acknowledged that they would need to rely on judgement more heavily than usual and take a risk management approach to monetary policy.”
The issue of rising prices was at the heart of this week’s Reuters Econ World podcast. I recorded a special live episode in New York with A Starting Point's (ASP) Chris Evans - yes, the Captain America actor - and Mark Kassen as they examine the ways Gen Z has been hit by the cost-of-living crisis and look for solutions. No superhero capes but you can listen here.
As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.
