Tuesday, April 15, 2025

Rabobank Does A World Tour Of Tariffs and Currencies And War And...

....Birkin bags.

As we've noted over the years: Rabobank gives Michael Every a lot of freedom in his choice of topics.

From Rabobank via ZeroHedge, April 15:

Rabobank: Just What Does A World In Which The Dollar Isn't Reserve Currency Look Like?

By Michael Every of Rabobank

The US has opened two new Section 232 trade actions likely to lead to 25% tariffs on semiconductors and pharma, as already flagged. Obviously, both industries will reel, and Ireland is likely to take a particularly large hit.

President Trump also suggested he may temporarily pause auto parts tariffs for firms shifting production to the US. Expect other industries to ask for the same, and to get the same response: only for a while, and only if you are moving production Stateside.

US Treasury Secretary Bessent has a shortlist of countries for trade deals: Japan, South Korea, Australia, the UK, and India - plus Canada and Mexico. Vietnam and ASEAN are loitering outside the door, being deeply entwined with China’s economy, but mostly running huge trade deficits with it and equally huge surpluses with the US. President Trump is unhappy with Vietnam’s recent state visit from China’s Xi --with calls for a joint stance against “bullying” and 45 deals signed-- but Hanoi boosting its defence budget 30% could mean it buys US F-16s, and more, to narrow the bilateral trade deficit. However, that’s almost certainly not going to be all the US demands. From a statecraft perspective, it will want countries to mirror what it is doing vis-à-vis China, creating a new closed trade/finance/energy/defence loop.

In the UK, ‘Senior Labour figures call for review of Chinese investment in UK infrastructure’, and the “Government’s rapprochement with Beijing may risk national security in wake of British Steel crisis, party members say”. Also, household and business refuse may start piling up in the streets outside just Birmingham as unions reject a pay deal ahead of May 1 local elections. So, lots of things that came in nice boxes last week now risk being publicly dumped.  

Former Treasury Secretary Yellen says the Trump admin is undermining the status of the US dollar: the same former Fed Chair who borrowed vast sums at the short end of the yield curve and didn’t refinance US debt cheaply at the long end when she had the chance. Yellen also says onshoring manufacturing jobs is “a pipe dream” and not desirable after presiding over tariffs on China and the CHIPS Act and IRA subsidies aimed at bringing industry and jobs back to the US.

A Financial Times editorial argues Trump has no cards and will lose the trade war, because the pro-globalisation Peterson Institute for International Economics (PIIE) says so. For them, despite being wrong for years, this is still an auto-(pharma & chips)-da-fe, an act of faith requiring public penance and the burning of heretics by the Inquisition. This religious view on trade is the latest in a series of with-us-or-against-us bifurcations – and it’s not helpful to those trying to look at the matrix of potential outcomes and the risks involved either way. After all, what ‘cards’ are the PIIE looking at? Yes, China makes stuff and the US doesn’t. But a larger trading bloc without China can, after a period of adjustment, leave China with vast excess production to absorb.

Likewise, Bloomberg commentary says the US dollar will soften as its reserve currency appeal fades; then provides zero commentary on what the follow-on consequences of not having a global reserve currency are for everyone who still has dollar debt to repay:....

....MUCH MORE

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