Aurelia Butler

According to UBS strategists, this could manifest through aggressive tariff measures targeting countries with substantial trade deficits with the US, particularly China. The policy focus is likely to extend to sectors considered critical to national security and economic interests.UBS identifies three potential tariff scenarios under a second Trump presidency. The first involves universal tariffs, which carry a 25% probability. This scenario envisions blanket tariffs on all US imports, such as a proposed 60% on Chinese goods and 10-20% on other countries.While such measures could generate revenue to offset tax cuts via Congressional reconciliation, UBS notes the political and logistical challenges. A universal tariff approach would harm both the US and global economies more severely and could spark widespread retaliation, leading to an escalating trade war.“In our view, President Trump would prefer to go the congressional route to achieve universal tariffs, although he has not yet publicly endorsed the idea. However, we believe that Congress will be unwilling to go along with it,” UBS strategists said.“If Congress is unwilling to impose universal tariffs, the Trump administration can try to implement them using executive authority. However, there is no precedent for this, and it remains to be seen whether such a move would hold up against legal challenges,” they added.Selective tariffs, with a 65% probability, are considered the most likely scenario. These would target specific goods or sectors using executive authority under existing trade laws.UBS expects this approach would likely revisit the 2020 Phase 1 trade deal with China while addressing contentious issues with the EU and Mexico.The bank highlights three factors that could soften the blow of selective tariffs on Asia, including China’s fiscal and monetary policies, stronger intra-regional trade, and rising US market share in the region.The third scenario, a brokered deal to avoid tariffs altogether, is seen as unlikely, with just a 10% probability.UBS points out that tariffs under Trump 2.0 would also have inflationary implications. Universal tariffs are expected to cause short-term price spikes, with UBS estimating a 10% tariff on all imports raising US price levels by up to 1.7% if corporate profit-led inflation amplifies the effects.Selective tariffs, on the other hand, could have a more limited impact on inflation and economic activity.These targeted measures would primarily focus on specific goods or sectors, allowing for trade rerouting to minimize disruptions.“While bilateral trade between the US and partner countries may decline because of the tariffs, actual rebalancing of international trade or reshoring of economic activity back to the US would likely be negligible,” UBS’s report states. More

Analysts at Capital Economics suggest that while countries are likely to retaliate against the economic strain of U.S. tariffs, these responses will aim to limit further escalation and avoid significant domestic repercussions.Historically, every targeted country except Japan retaliated to U.S. tariffs during Trump’s first term. However, these retaliatory measures were calculated to minimize the risk of a spiraling trade conflict. For instance, nations imposed tariffs on politically sensitive U.S. exports, such as the European Union targeting Harley-Davidson (NYSE:HOG) motorcycles and Bourbon whiskey. This strategy sought to pressurize U.S. policymakers while safeguarding local economies from inflationary impacts.Countries also adjusted their approach over time. Instead of solely imposing counter-tariffs, they engaged in negotiations, offering concessions to the U.S. in exchange for tariff relief. Mexico and Canada managed to mitigate some trade restrictions through adjustments in the USMCA agreement, while nations like Japan and the EU negotiated market access and purchase commitments to ease tariff threats. These concessions often extended to sectors deemed politically or economically significant to the U.S., such as agriculture and manufacturing.Despite these efforts, retaliatory measures and concessions frequently failed to produce significant policy reversals from the U.S. under Trump. Additionally, exchange rate adjustments added complexity to the situation. When currencies weakened due to U.S. tariffs, the Trump administration accused countries of devaluation to counteract tariffs. This led to further threats, as seen with Turkey and South American nations like Brazil and Argentina.A second Trump administration could see a similar dynamic, though analysts warn of possible shifts in U.S. trade policy objectives. If tariffs are framed as a revenue-generating tool for domestic tax cuts, rather than leverage for trade negotiations, it may become more difficult for countries to strike deals. In such scenarios, many governments might opt for limited retaliatory measures while relying on currency adjustments as a buffer.Geopolitical alignments could further influence tariff policies. For instance, while the Biden administration rolled back tariffs on allied nations such as Japan and the EU, restrictions on adversaries like China and Russia were maintained or tightened. This trend suggests that alliances may dictate the likelihood of tariff relief or persistence.In the face of increased U.S. tariffs, nations are likely to retaliate with targeted countermeasures that maximize political pressure on the U.S. while minimizing broader economic disruption. Where feasible, they may seek alternative solutions through trade agreements or strategic compromises. However, there is a general lack of global enthusiasm for prolonged trade conflicts. More

Moody’s upgraded Cyprus’ long-term issuer and senior unsecured ratings to A3 from Baa2, citing a “material improvement” in fiscal and debt metrics that the rating agency expected to be sustained. It was the first time the island has been in the “A” category, considered upper medium grade, since 2011.”A prudent fiscal policy, stability in the financial sector and the constant reforms at the core of our policies is reaping positive results,” President Nikos Christodoulides said in a written statement.”This success is a collective effort, and primarily that of the Cypriot people,” he said.Cyprus’ credit ratings started tumbling in 2011 after a domino sequence of events from fiscal slippage, a massive munitions explosion and ever-increasing bank exposure to the debt crisis in Greece pushed the country into an international bailout in 2013. In return for financial aid, Cyprus was forced to wind down a major commercial bank and seize a portion of unsecured clients’ savings at another in a process known as a bail-in.Moody’s said Cyprus had significantly reduced its government debt ratio since its peak in 2020, ranking among the countries with the largest debt ratio reductions globally. More

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(Reuters) -President-elect Donald Trump on Friday said he will nominate prominent investor Scott Bessent as U.S. Treasury secretary, ending days of twists that saw high profile candidates pitted against each other for the cabinet position with vast influence over economic, regulatory and international affairs.Wall Street has been closely watching who Trump would choose, especially given his plans to remake global trade through tariffs and extend and potentially expand the raft of tax cuts enacted during his first term.The choice of Bessent, 62, who has spent his career in finance, gives Wall Street an advocate for tax reform and deregulation. Some strategists said his nomination was a relief as he understands markets and his appointment could reduce the chance of severe tariffs. The announcement – the most prominent of a flurry of Friday night appointments by Trump – caps a week where big name Wall Street luminaries’ chance at the job oscillated on a daily basis.Other names that had been considered included Apollo Global Management (NYSE:APO) Chief Executive Marc Rowan and former Federal Reserve Governor Kevin Warsh. Investor John Paulson had also been a leading candidate, but dropped out, while Wall Street veteran Howard Lutnick, another contender, was appointed as head of the Commerce Department. The choice came after days of deliberations by Trump as he sorted through a shifting list of candidates. Bessent spent day after day at Trump’s Mar-a-Lago home in Florida providing economic advice, sources said, a proximity to the president-elect that may have helped him prevail.”Scott is widely respected as one of the world’s foremost international investors and geopolitical and economic strategists,” said Trump as he announced the nomination in a statement released on Truth Social.FINANCE CAREER TO TREASURYBessent, from South Carolina, has spent his career in finance, working for macro investment billionaire George Soros and noted short seller Jim Chanos, as well as running his own hedge fund.As a money manager, he made a large bet on Trump winning after spotting what he called an anomaly in the market – that political and market analysts were too negative on what a Trump victory would mean.Bessent, who did not immediately respond to a request for comment, has advocated for tax reform and deregulation, particularly to spur more bank lending and energy production, as noted in a recent opinion piece he wrote for The Wall Street Journal. The market’s surge after Trump’s election victory, he wrote, signaled investor expectations of “higher growth, lower volatility and inflation, and a revitalized economy for all Americans.””Bessent has been on the side of less aggressive tariffs,” said Oxford Economics’ Ryan Sweet, adding that picking him makes the steep tariffs Trump proposed on the campaign trail less likely. Bessent follows other financial luminaries who have taken the job, including former Goldman Sachs executives Robert Rubin, Hank Paulson and Steven Mnuchin, Trump’s first Treasury chief. Janet Yellen, the current secretary and first woman in the job, previously chaired the Federal Reserve and White House Council of Economic Advisers.ECONOMY’S QUARTERBACKAs Treasury secretary, Bessent will essentially be the highest-ranking U.S. economic official, responsible for maintaining the plumbing of the world’s largest economy, from collecting taxes and paying the nation’s bills to managing the $28.6-trillion Treasury debt market and overseeing financial regulation, including handling and preventing market crises.The Treasury boss also runs U.S. financial sanctions policy, has influence over the U.S.-led International Monetary Fund, World Bank and other international financial institutions, and manages national security screenings of foreign investments in the United States.Bessent will face challenges, including safely managing federal deficits that are forecast to grow by nearly $8 trillion over a decade due to Trump’s plans to extend expiring tax cuts next year and add generous new breaks, including ending taxes on Social Security income.Without offsetting revenues, this new debt would add to an unsustainable fiscal trajectory already forecast to balloon U.S. debt by $22 trillion through 2033.Managing debt increases this large without market indigestion will be a challenge, though Bessent has argued Trump’s agenda will unleash stronger economic growth that will grow revenue and shore up market confidence. Bessent will also inherit the role carved out by Yellen to lead the Group of Seven wealthy democracies in providing tens of billions of dollars in economic support for Ukraine in its fight against Russia’s invasion and tightening sanctions on Moscow. But it is unclear whether he will pursue this, given Trump’s desire to end the war quickly and withdraw U.S. financial support for Ukraine.Another area where Bessent will likely differ from Yellen is her focus on climate change, from her mandate that development banks expand lending for clean energy to incorporating climate risks into financial regulations and managing hundreds of billions of dollars in clean-energy tax credits.Trump, a climate-change skeptic, has vowed to increase production of U.S. fossil fuel energy and end the clean-energy subsidies in President Joe Biden’s 2022 Inflation Reduction Act.The Treasury secretary is also the administration’s closest point of contact with the Federal Reserve. Both Yellen under Biden and Mnuchin under Trump typically met weekly with Fed Chair Jerome Powell, often over breakfast or lunch.Bessent has floated the idea of creating a “shadow” Fed chair. This would entail nominating as early as possible a presumptive Powell successor to the Fed Board who would then deliver their own policy guidance so that, as Bessent told Barron’s last month, “no one is really going to care what Jerome Powell has to say anymore.”Bessent has since said he no longer thinks the idea of a shadow chair is worth pursuing, the Wall Street Journal reported.Powell’s term as Fed chair expires in May 2026.SOAP OPERA Bessent, along with John Paulson, had been an early favorite for job earlier in the year according to a Reuters report at the time and seemed to be in pole position a week after election day, on Nov. 12, when Paulson exited the race citing “complex financial obligations”. However, there were many twists in the race for the top position. On Nov. 13, banker Howard Lutnick, who was leading a transition team to vet personnel and draft policy, emerged as a top contender. Lutnick, however, was taken out of the running after Trump nominated him to lead his trade and tariff strategy as head of the Commerce Department.The pool of candidates then widened when Rowan, and former Federal Reserve Governor Kevin Warsh were under consideration as well as Republican U.S. Senator Bill Hagerty, sources with knowledge of the transition process said at the time. More

(Reuters) -U.S. President-elect Donald Trump has chosen Russ Vought, a key architect of “Project 2025,” the controversial conservative plan to overhaul the government, to be director of the U.S. Office of Management and Budget, a powerful agency that helps decide the president’s policy priorities and how to pay for them.Vought, who was OMB chief during Trump’s 2017-2021 term, would play a major role in setting budget priorities and implementing Trump’s campaign promise to roll back government regulations.Since Trump left office, Vought has been deeply involved in Project 2025, a series of detailed policy proposals for Trump’s second term drawn up by hundreds of high-profile conservatives. Among other measures, Project 2025 calls for a broad expansion in presidential power by boosting the number of political appointees and increasing the president’s authority over the Justice Department. The project also proposes enforcing laws that make it illegal to mail abortion pills over state lines, criminalizing pornography and eliminating the Department of Education.The project’s authors, Vought included, have also advocated for the reclassification of parts of the federal workforce that would give Trump the authority to fire tens of thousands of government employees.During his election campaign, Trump repeatedly denied he had any links to Project 2025, even though many of its authors were former officials from his first administration. With Vought’s selection, the president-elect has now tapped several former aides with Project 2025 links for key administration roles.”Russ has spent many years working in Public Policy in Washington, D.C., and is an aggressive cost cutter and deregulator who will help us implement our America First Agenda across all Agencies,” Trump wrote on his social media site Truth Social. DAY ONE PROPOSALSDuring the election campaign, Trump’s Democratic opponents made a concerted effort to raise public awareness of Project 2025 among voters, warning it was a blueprint for a hard-right political shift they said would occur under Trump.Their effort succeeded in making Americans widely aware of the project’s existence, and opinion polls showed voters broadly disapproved of the effort. The Trump campaign expressed increasing annoyance with the project, repeatedly emphasizing that its proposals were separate from the campaign’s official policy platform.Vought wrote a chapter for Project 2025 centered on the management of the president’s executive office. While many of the suggestions he laid out are highly technical, they are for the most part aimed at expanding the president’s authorities and lessening the power of career civil servants.”After months of lies to the American people, Donald Trump is taking off the mask: He’s plotting a Project 2025 Cabinet to enact his dangerous vision starting on day one,” said Alex Floyd, a spokesperson for the Democratic National Committee. Trump spokesperson Karoline Leavitt said Trump never had anything to do with Project 2025, and that all his cabinet nominees and appointments were “whole-heartedly committed to President Trump’s agenda, not the agenda of outside groups.” Vought has helped craft several executive orders that could be implemented on day one of Trump’s term, according to two people involved in the project. They include an order instituting Schedule F, which would re-categorize thousands of civil servants to enable Trump to fire them should he want to, said those people, who requested anonymity to discuss the project’s internal deliberations.Trump’s other nominees with Project 2025 ties include Brendan Carr, who wrote the project’s chapter on the Federal Communications Commission. Carr is now set to lead that agency.Carr has criticized the FCC (BME:FCC)’s decision not to finalize nearly $900 million in broadband subsidies for Elon Musk’s SpaceX satellite internet unit Starlink, as well as the Commerce Department’s $42 billion broadband infrastructure program and President Joe Biden’s spectrum policy.Other Project 2025 contributors who have been named by Trump as officials in his new administration are Tom Homan, Trump’s “border czar,” John Ratcliffe, his incoming CIA director and Pete Hoekstra, Trump’s choice for ambassador to Canada.Stephen Miller, one of Trump’s incoming deputy chiefs of staff, founded a conservative legal and advocacy group known as America First Legal, which contributed to the project.At OMB, Vought will work with X owner Elon Musk and former Republican presidential candidate Vivek Ramaswamy to carry out Trump’s campaign pledge to slash government spending and regulations.Musk and Ramaswamy have been tapped by Trump to co-lead a newly created Department of Government Efficiency, an entity Trump has indicated will operate outside the confines of government. More