Review our resources for client conversations.
Help clients understand how our distinct business model funds innovative medical research.
We're always looking for exceptional team members.
By Nathan Chaudoin - March 9, 2018
On March 1, President Trump announced the U.S. would set two tariffs: 25 percent for steel imports and 10 percent for aluminum imports. These could take effect as early as this week. The White House announced that the tariffs would be applied broadly, without targeting specific countries and import quotas. First proposed by the U.S. Department of Commerce, the tariffs' main goal is to help improve the utilization rate of U.S. steel makers, from the current 72 percent to 80 percent. The department sees the latter as the rate needed for the long-term health of the industry.
The proposed steel tariff is likely to have little effect on China, whose steel exports to the U.S. account for only 1.1 percent of China's total steel export1, and 2 percent of total steel imports into the U.S.2 Growth in emerging markets (EM) and Asia remains on solid ground. Unless these U.S. trade tariffs lead to major retaliatory actions from other countries, especially China, we do not see any major downside risks in the emerging markets, given the healthy state of domestic activity and growing regional trade activity.
Last week's correction in emerging markets was driven by the U.S. rate cycle; EM fundamentals have not materially changed. The outlook for EM continues to strengthen. The negative equity market response reflects markets trying to price the risk of escalated US protectionism, rather than this specific tariff. There is strong global growth, and a widening gross domestic product (GDP) growth of EM relative to developed markets (DM). There are also continued positive revisions to EM earnings growth. We think valuations are attractive on a relative basis to DM.
We don't expect higher U.S. rates or inflation to derail EM equities. We will manage risk related to U.S. policy, such as the impact of Mexico and NAFTA negotiations on growth and slowing domestic demand.
We believe a full-blown trade war is unlikely. If China responds, the response is expected to be measured, not confrontational. For example, China could impose retaliatory tariffs on U.S. exports to China such as soybeans and automobiles; delay trade and investment deals; weaken its currency; or slow the purchase of U.S. Treasury bonds.
While we're not worried about tariffs on steel and aluminum in emerging markets, any tariffs on electronics would likely have spillover effects on the supply chain, including companies in Korea, Japan and Taiwan. Furthermore, tariffs are generally inflationary as they add to price pressures. As a result, we think the Federal Reserve may be more likely to hike four times this year.
Each generation of wireless technology enabled faster speeds and innovation. Could 5G also pave the way for improved social and environmental issues?
Dividends are at risk in the aftermath of COVID-19 shutdowns, but we’re still finding companies that can withstand the recession and grow their dividends in the future.
Focusing on quality has historically led us to companies with strong financial and ESG characteristics.
We believe active managers are well positioned to exploit inherent inefficiencies in emerging markets.
Today, the massive population shifts from rural to urban areas is transforming the economies of many of the world’s emerging markets.
September 27, 2017
The recent negative equity market response—despite limited economic exposures—reflects how markets are trying to price in the risk of escalated US protectionism, rather than any specific tariff. We believe the steel and aluminum tariffs will have a limited impact on emerging markets.
March 09, 2018
1 International Trade Administration. (2018, March). Global Steel Trade Monitor: Steel Exports Report - China . Data from Jan.-Dec. 2017.
2 International Trade Administration. (2017, Dec). Global Steel Trade Monitor: Steel Imports Report - United States . Data from Jan.- Sept. 2017.
International investing involves special risks, such as political instability and currency fluctuations.
Diversification does not assure a profit nor does it protect against loss of principal.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.