Trump’s trade war is starting to look not so scary on Wall Street

The tariffs of the US seems to be settled slightly less than President Donald Trump threatened in April, but the difference was enough to alleviate the Wall Street’s worst fears.

With the US-European Union trade agreement at the weekend, it is now clear that the effective tariff rate or net effect other than the nominal level will be in the range of 15-20%. This is far above the low -digit ratio at the beginning of the year, but the fear that may occur as a result of the April 2 announcement is a 25% or worse.

The economists feared that the aggressive tariffs proposed by Trump on April 2 “Liberation Day” will increase inflation and lead to a significant slowdown or stagnation.

However, the explanations of the Day of Judgment around the tariffs have declined since then. Economists use a strong global growth ground of tariffs, less than expected, long -term inflationary influence and financial conditions, as the reasons why landscape looks less terrible.

For example, JPMorgan Chase reduced the risk of stagnation to 40% from the level of salvation-day by up to 60%-higher than normal, but at least less pessimistic.

JPMorgan Chief economist Bruce Kasman said in a note, “Tariffs are a tax hike for the procurement of foreign goods, but this tax drag is not likely to be large enough to remove the US expansion.” He said.

Like the others, the bank had expected Trump tariffs to lead to a global harmful retaliation tour. “However, an expected increase in global trade restrictions has turned into a modest step towards the opening of markets for the US.” He said.

Tariffs are still a danger

Following the US-EU agreement, the comments and 15% tariffs around the Wall Street reiterated the belief that the risk of recession is reduced, even if the tariffs are still the potential to have a suffocating effect on growth.

“We believe that the most likely result is slow growth and solid inflation: not a recession, but a ground where the negative effects of trade and immigration controls on growth are more outdated than the increase than the increase.”

To be sure, the ultimate consequence of trade negotiations is far from being clear.

There are a number of other problems that Trump must be resolved before August 1, which may result in important taxes affecting US trade partners, including Japan and others.

Zezas, more aggression in trade conflicts “scales can be easily filed towards a slight stagnation,” Zezas added. “In summary, we see that the US economy has been leaning towards a slowdown, but it has been loaded with more clarity on financial situations and deficiencies, alleviating a significant risk of stagnation.”

The US-Europe agreement will give the Federal Reserve more to chew this week, when he discusses the impact of tariffs on inflation. Since Trump took office, the Fed comparison has largely kept the short -term interest rate constant, because policy makers are cautious about the impact of tariffs on inflation.

The markets ended on Wednesday. However, they will follow the clues about the more intention of the Fed, which will be affected by the last effective tariff ratio.

The FED is expected to confirm a ratio deduction in September, and if the inflation is under control, the probability of this will increase if the economy is weakening.

“Effective tariff rates are at the beginning of the year,” Citigroup economist Andrew Hollenhorst said. “However, the Great Trade Partner tariffs will be more and more confident that the dragging on the risk of growth and inflation will be more and more confident that the markets and nurtured authorities will be humble with close stability of more than 15% than much higher than the proposed rates on April 2.”