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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThis week, in a post on his social media site Truth Social, Donald Trump said he would impose tariffs on Canada and Mexico “as one of my many first Executive Orders”. Trump specified that the tariffs would be 25 per cent on all imports from Canada and Mexico, and added an extra 10 per cent for Chinese goods — accusing these three countries of permitting illegal migration and drug trafficking into the US.But who will be harmed most? If the majority of American businesses importing goods pass on the cost of the tariff to the person buying the product, US consumers will be hit with higher retail prices. If US businesses absorb the extra costs, it will dent their profits. Or if foreign exporters are forced to lower their wholesale prices by the value of the tariff in order to retain US customers, they will take the hit.When Trump imposed tariffs in his first term of office between 2017 and 2020, economic studies suggested most of the impact was felt by US consumers. However, some economists predict that this time it is foreign exporters who will bear the brunt. So what do you think? Who will be most harmed by Trump’s tariffs? Tell us your view by voting in our poll or commenting below the line.Some content could not load. Check your internet connection or browser settings. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNever read or post. That is my rule on social media. Always use primary sources. That is my rule when it comes to data and research for this column. When they clash — which frustratingly they have twice in as many months — the second rule trumps the first.  October saw me download TikTok to confirm whether indeed a song had gone viral about “looking for a man in finance”. What a cesspit of nonsense that app is. I pity the Chinese spies having to wade through it all day.  This week I’ve been forced to join Truth Social, as Donald Trump is using it to announce major policy initiatives. I wanted to see exactly what he wrote about tariffs on Monday that rattled markets so.Have you ever read a full post by the president-elect? What I don’t understand is his random use of capital letters. For example, the words Crime, Drugs, Invasion and Caravan appear mid-sentence. As do Illegal Aliens and Open Border.But “simmering problem” isn’t capitalised, nor is “pay a very big price”. Then I wondered if he was sending a secret message in caps. If you can decipher what MCCDCMOBEOMCTALLUSOBTDFAICMC means, do email our news desk.What was clear, though, is tariffs were branded as threats rather than instruments of economic policy. In this case against Canada and Mexico for supposedly failing to stop humans and Fentanyl from “pouring” into “our Country!”In a separate post Trump also tied an additional 10 per cent tariff on China specifically to drugs (small “d” this time). Hence it was surprising to me that currencies and stock prices took the news so seriously.There was an immediate drop of 1 per cent in the Canadian dollar and Mexican peso versus the greenback. Asian equity markets were also weaker as were European bourses. Carmakers in particular needed their airbags.By the end of the week, however, investors had moved on. Indeed, as I write the S&P 500 has racked up seven consecutive days of gains. Even the Nasdaq Golden Dragon China Index — heavy in tariff-vulnerable US companies with big China operations — is higher than it was last Friday.But the reason shares don’t care about Trump waving his tariff club around like my two-year-old son has nothing to do with whether or not he is serious. Nor Christine Lagarde’s advice on Thursday for Europe “not to retaliate but negotiate” on trade with the US.It is because of the fundamental nature of equities and how the buyers of them are compensated for uncertainty. This so-called risk premium is why stocks outperform most other asset classes. The riskier the bet, the higher the return.They are two sides of the same coin so cannot be separated. Trying to do so is silly. Proponents of environmental, social and governance-based investing, for example, keep failing to understand this.They argue on the one hand that picking stocks based on superior ESG scores makes sense because well-run companies are less risky. But they also claim these same companies should outperform over time.Er, no. If they are less volatile their returns will be lower. The premium investors will demand to own them falls. I have written about the flip side to this before in relation to high-emitting stocks. They beat the index precisely because of transition risk.The same is true with tariffs. If Trump and his latest nominees — Jamieson Greer for trade representative and Kevin Hassett for head of the National Economic Council — do ignite a trade war, equity risk premia rise and so too returns.You don’t need to be an academic to see that tariffs don’t bother equity markets. Pull up any long-run chart you like. Likewise, China’s stock market woes over the past few years have nothing to do with trade.But if, like me, research papers make you tingle in a nice way, you could do worse than reading one from three years ago in the Journal of International Money and Finance by Marcelo Bianconi, Federico Esposito, and Marco Sammon.In it they show that as well as affecting economic variables such as employment, trade and investment, uncertainty around tariffs also influences asset prices. Positively. Looking at the years between 1991 and 2001, as the US congress to and froed on revoking China’s preferential tariff treatment, they found investors demanded an extra 3.6 to 6.2 per cent return as compensation when uncertainty increased.Controlling for other factors, firms more exposed to possible tariffs experienced significantly higher stock returns than those less exposed, as defined by how global their businesses were as well as reliance on inputs from China specifically.Any risk premium hypothesis also requires other explanations for outperformance to be discounted. The paper looked at the three most obvious ones: that changes in expected profitability and cashflows drove the differences in returns; that investors over- or -underestimated the effect of tariff uncertainty on stock prices; that trade worries were considered positive for some US firms as they discouraged Chinese imports.None of these alternative explanations were supported by the data. Likewise, no premium was found when exactly the same analysis was run during years when trade regimes were stable.Therefore the result is genuine. And it would have made good money by trading a portfolio made up of long positions in companies exposed to trade uncertainty, while shorting those which aren’t. A similar approach based on ESG scores would probably work too — but try pitching that to Birkenstock-wearing Dutch trustees.The point for newbie equity investors is that risk — from tariffs, wars, technology or otherwise — is not to be feared. If you can hack the volatility, you will be paid for taking it.The author is a former portfolio manager. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__ More

The bank now anticipates only two 25 basis points reductions in 2025, down from its previous forecast of three.The revision comes as Australia’s labor market shows resilience, with robust job growth and increased work hours, coupled with steady business conditions around long-term averages. Consumer confidence has also lifted, reflecting recognition of the government’s stage three tax cuts, ANZ said in a note.“The RBA’s tone remains hawkish, with the Board still focused on demand outpacing supply,” ANZ said. It added that inflation, measured on a six-month annualized trimmed mean basis, is projected to fall within the RBA’s target band by February, but that alone may not suffice to prompt early easing.”A lower-than-expected Q4 CPI and some softening in the labour market could prompt the RBA to cut in February, especially given that the November Board minutes appeared to open the door to an early 2025 easing,” said ANZ analysts, but emphasized that the probability of the central bank acting preemptively remains low.ANZ’s updated forecast places the terminal cash rate at 3.85%, as it now expects only two rate cuts, one in May, and another in August 2025.“Barring a significant shock, easing is more likely to be driven by a gradual decline in inflation rather than a sharp downturn in activity,” ANZ noted.Australia’s latest consumer price index inflation grew less than expected in October as government subsidies helped lower energy expenses, although core inflation rose further above the central bank’s target range. The RBA only expects inflation to fall within its 2% to 3% target range by 2026.The RBA held rates steady at a 12-year high of 4.35% in its November policy meeting , and any upcoming meetings and economic data will be closely watched as markets assess the trajectory of monetary policy heading into 2025.Westpac also recently pushed back expectations of a RBA cut to May, from February. More