NAB Morning Call Markets ignore a 50% hit on Brazil
Markets Shrug Off Trump's 50% Brazil Tariff Bombshell
Markets are surprisingly unfazed by President Trump's announcement of a 50% tariff on imports from Brazil, which is driven by political reasons rather than trade imbalances. Despite this aggressive tariff move, US equities and commodity currencies like the Australian dollar are rising.
Evidence shows that exporters, such as Japanese car manufacturers, are absorbing the tariff costs by cutting their margins to keep prices stable for US consumers, potentially limiting inflationary impacts. Fed officials like Mary Daly acknowledge that the tariff effect on consumer prices may be muted and spread across multiple parties rather than fully passed on.
However, the full inflation impact of tariffs may take 3-6 months to materialize, and markets remain uncertain if rate cuts by the Fed could be appropriate if inflation stays contained. This evolving tariff and trade environment underscores that markets are responding more to uncertainty and political maneuvering than to direct economic harm at this stage.
Japanese Firms Absorb Tariffs
- Japanese automakers are cutting margins to keep prices low in the US despite a 25% tariff.
- Exporters absorb tariffs to maintain market share, limiting the inflationary impact on US consumers.
Manage Tariff Impact Carefully
- Exporters tend to absorb lower tariff rates to preserve market share.
- Sustained tariffs above 10% to 15% risk profitability and may force price increases or market exits.