• 11 hours Legacy Automakers See Massive Spike In Sales
  • 1 day Tesla's Biggest Competitor Is Going Cobalt-Free
  • 2 days Stocks That Could Benefit From Biden’s $2.5 Trillion Infrastructure Plan
  • 4 days The Mafia Has Expanded Its Influencer Under COVID-19
  • 5 days How Fintech Will Get Skeptics Into Crypto
  • 6 days Monday Markets Rise On Stellar Jobs Report
  • 9 days Not Even Bribery Allegations Can Crush Cannabis Boom
  • 13 days Canada May Become Leader In Booming Battery Market
  • 14 days Nearly 42% Of All Amazon Reviews Are Fake
  • 15 days Kidnapping Is Big Business In Nigeria
  • 16 days COVID Fraud Amounts To Nearly $570M
  • 19 days Art Is Now An Algorithm
  • 20 days TikTok Threatens America, Tesla Threatens China
  • 20 days Small-Cap Energy Sectors With Big Upside
  • 24 days Coinbase Valued At $68 Billion Ahead Of IPO
  • 26 days 3 Stocks To Watch Amid AstraZeneca Covid Vaccine Snafu
  • 27 days Get Ready For First Tax Hike Since 1993
  • 30 days Tech Majors Bet Big On Clean Energy
  • 31 days Is This The Next Amazon Of Used Cars?
  • 32 days First Ever Tweet Attracts $2.5M Bid On Blockchain Platform
The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

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