Markets, businesses wary of tariffs

In the days following President Trump’s announcement that the U.S. would be imposing tariffs on imports from Canada, Mexico and China—and then pausing imposing the tariffs on Canada and Mexico for 30 days—investors and businesses are scrambling to figure out what may be ahead.

Although there is still much that is uncertain, we asked our experts to weigh in on the potential effects. Here’s what they said:

Economic growth
“The big picture is that tariffs negatively impact gross domestic product (GDP) growth and push prices higher—if the tariffs take effect and then remain in place for a long time, which is questionable,” said BOK Financial® Chief Investment Officer Brian Henderson.

For instance, if the 25% tariffs on imports from Canada and Mexico are imposed after 30 days and are sustained for long, it could cause recessions in both countries. Meanwhile, tariffs on those countries and China would likely clip GDP growth in the U.S. by only a few tenths of a percentage point, he explained.

Inflation and the Fed
Going into the year, one of the major questions about potential tariffs was how they would impact inflation and, in turn, how the Federal Reserve would react. Even now that there is more clarity on the size of the tariffs and when they might take effect, any changes on both fronts still are unlikely to be neither immediate nor certain, experts said.

“Consumers aren’t likely to see the effects on goods’ prices from tariffs for at least a couple of months, if they even remain in place for that long,” Henderson explained. “The Fed won’t be in a hurry to make any dramatic changes with interest rate policies until it sees the real effect of the changes on trade policy over several months.”

U.S. businesses
Both businesses and job seekers might experience some uncertainty around the effects of tariffs, said Matt Stephani, president of Cavanal Hill Investment Management, Inc., a subsidiary of BOKF, NA.

“It’s a bit like seeing through fog—cloudy at best, particularly for small businesses in both the US and the targeted countries,” he explained. “We’ve seen a dramatic rise in small-business confidence in the U.S. since the election; however, there is the risk that the uncertainties around tariffs will hit business confidence, which could impact the labor market as businesses put decisions on hold.”

Businesses that import goods from the countries targeted by tariffs will experience a direct impact, experts noted. For instance, in the heavy equipment industry, some large fully constructed machines are imported, as are some components of machines that are manufactured in the U.S., said Darren Grahsl, director of dealer financial services for BOK Financial.

“North American industry is highly integrated and tariffs would put the whole supply chain at risk, which wouldn’t be good for the construction industry in general,” he explained. However, the biggest policy change to impact the industry is not likely tariffs but rather the widespread deportation of undocumented immigrants, who make up a large portion of the construction workforce, he continued. “That’s a greater concern, particularly in the short run.”

U.S. financial markets
Although U.S. stocks originally dropped on Feb. 3, news that the tariffs on Mexico and Canada would be delayed for a month helped them rebound. Still, investors don’t like uncertainty, Stephani noted. “The scope of tariffs is higher than investors expected, so this adds uncertainty to the market which reduces investor willingness to take additional risks.”

And it’s not just the stock market that was impacted, Henderson said. “We saw an immediate reaction in the financial markets with the U.S. dollar appreciating in value relative to many other foreign currencies, stocks under downward pressure and longer-term bond yields coming down.”

Energy
U.S. gas prices initially rose on the news of the tariffs, but then fell again on Monday after the tariffs on Mexican and Canadian goods were paused. Around 25% of the crude that comes into the U.S. is from Canada and Mexico; however, if the tariffs are imposed, it would affect different regions at varying levels, said Dennis Kissler, SVP of trading for BOK Financial. For instance, a 10% tariff on Canadian energy would probably result in higher gas prices in Midwestern states, where there are large refineries that take in Canadian oil.

However, for the oil industry, the larger issue may be the tariff on imports from China and how much it negatively affects their economy and thus oil demand, Kissler said. “China is the biggest importer of crude oil. If the U.S. hurts them a little bit or hurts them a lot, that will have an impact on the oil industry for the longer term and actually cause prices to fall.”

International markets
In addition to the uncertainty surrounding the tariffs on imports from Mexico and Canada, China’s retaliatory tariffs of as high as 15% on some imports from the U.S., and Canada’s potential retaliatory tariff, there is also speculation that tariffs will soon be announced on other countries. “The U.S. president has also stated that tariffs will be enforced on the European Union with few details as of yet. The U.K. could be one of the few countries which may escape tariffs with negotiations ongoing,” said Peter Tibbles, manager of international sales and trading for BOK Financial.

“The markets will now be ultra wary of any comments on tariffs with reactions likely to be quick and brutal,” he continued. “A long-drawn-out global trade war would not be good for global stock markets or global growth.”