Trade is complicated, what with all those products and parts endlessly criss-crossing borders. But tariffs are simple! Especially when they come in big round numbers. For an incoming US president keen to exert his authority, what could be more straightforward than slapping 25 per cent levies on absolutely everything coming from Mexico and Canada?
Needless to say, the reality of such a blanket tariff policy, proposed by Donald Trump via social media, would be chaotic and largely negative. The US’s neighbours are its two biggest trade partners. Jobs have been created over many decades; prices lowered. Investors unsurprisingly reacted on Tuesday by selling off shares in companies with cross-border supply chains, like Ford and General Motors.
Offloading automotive stocks, or the Mexican peso, seems straightforward. But in reality, positioning portfolios for trade war is a head-scratcher. For one, tariffs that start out broad can become narrow thanks to carve-outs and exceptions. And the more intricate a supply chain, the more parties along the line there are to absorb part of the cost increase before it reaches the consumer.