• 3 hours Why Investors Shouldn't Ignore Gold Stocks
  • 21 hours Facebook Scrubs Over 2 Billion Fake Accounts
  • 1 day Dow Scrambles To Avoid Fifth Straight Weekly Loss
  • 2 days Is This The World’s First Truly Democratic Stock Exchange?
  • 2 days India’s Wealthiest Set To Hold $23 Trillion By 2028
  • 2 days First Quarter Profits Slip For World's Top Oil Companies
  • 2 days The Yuan May Be China's Biggest Weakness
  • 3 days Hedge Funds Having A Banner Year
  • 3 days Disney Heiress Asks “Is There Such A Thing As Too Much?”
  • 3 days BHP Turns Bullish On EVs
  • 3 days Investors Turn Bullish On America’s Nuclear Decommissioning Business
  • 4 days The $90M Inflatable Rabbit Redefining Modern Art
  • 4 days Huawei’s Fate In The Air
  • 4 days Tesla Slashes Prices Again
  • 4 days The Modern History Of Financial Entropy
  • 5 days Italy’s Central Bank Embraces Sustainable Investing
  • 5 days Trump Lifts Metals Tariffs To Cool Simmering Trade War
  • 5 days Researchers Push To Limit Space Mining
  • 5 days Could China Start Dumping U.S. Treasury Bonds?
  • 6 days Is Winter Coming For HBO?
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Trump's Trade Policy to Drive Price Inflation and Gold Buying

Donald Trump's trade policy is likely to spark higher consumer price inflation, and that has ramifications for gold and silver prices. Regardless of where investors stand regarding the president's plan to make Mexico "pay" for the border wall, if he is successful in getting Congress to impose a hefty tax on imports it will mean higher prices for things. A tax on goods from China could be even more inflationary.

Climbing the Wall

Saying that higher import taxes are inflationary may be a statement of the obvious, but it is worth making given Trump's recent promotion of a tax on Mexican goods.

He implies Mexican exporters will "pay" for the wall by absorbing the 20% tax. They won't. No competitive enterprise has that sort of excess margin.

Trump can punish Mexican exporters by making them less competitive, but he cannot make them pay. Because of Trump's approach, the U.S. consumer will pony up, one way or another.

Prices Up, Up, Up

The true merits of taxing imports from Mexico and China are currently hotly debated, but no one should be fooled about who will bear the cost. The real question for Americans is whether it makes sense to pay significantly higher prices for goods in order to finance the wall and stimulate U.S. employment and manufacturing.

While on the subject, it is also worth noting that price inflation in the U.S. does not necessarily mean the dollar will weaken relative to other world currencies. In other words, the DXY index and the Consumer Price Index can move higher in unison.

Consider the proposed 20% tariff on Mexican imports. The dollar will weaken relative to Mexican tequila, but it may well strengthen relative to the peso.

Trump's threats to renegotiate NAFTA and implement taxes on imports crushed the peso in the weeks following the election. Traders saw bad news ahead for the Mexican economy and dumped the currency.

This dynamic may explain why gold and silver prices aren't yet responding strongly to the inflationary prospect of higher tariffs. Sometimes precious metals rally in advance of higher inflation rates, and sometimes they follow.

So far this year, the U.S. dollar has fallen versus most foreign currencies. Should we start to see a rise in the DXY index, it could exert modest disinflationary pressures in some areas of the economy. But regardless of where the dollar heads against other currencies, the inflation genie will be let out of the bottle if Trump successfully implements his trade policy and CPI numbers shoot higher.

 

Back to homepage

Leave a comment

Leave a comment