Potential New Trade War Timeline

Investing.com — Analysts at UBS outline a multi-phased process for a potential trade war, influenced by political maneuvers and economic effects.

Phases of Progression

UBS categorizes the expected progression into distinct stages throughout 2025:

1. Tweet Phase: Already underway, this early stage includes public declarations and demands via social media, which serve to define negotiating positions and exert pressure on trade partners.
2. Imposition Phase: Anticipated to begin in Q1 2025, this phase involves laying the legal groundwork for imposing tariffs, requiring procedural steps, public commentary, and drafting measures that withstand scrutiny.
3. Impact Phase: Expected to commence in the second quarter, during which businesses may stockpile and manage inventory to mitigate disruptions. Broader economic effects might arise quickly, even before corporate earnings reflect tariff costs.
4. Negotiation Phase: Ongoing talks are likely through the year to address tensions or reactions.

Recent Developments

China's restrictions on critical metals in response to U.S. actions emphasize the transactional nature of trade policies which can change rapidly.

Market Responses and Economic Implications

UBS suggests that how global markets respond could influence the trajectory of the conflict. They cite Donald Trump's threats of imposing tariffs on BRICS countries as indicative of heightened rhetoric, though unlikely to be acted upon.

Emerging market currencies, particularly the Chinese yuan, may experience increased volatility due to reduced trade volumes and risk aversion from investors, despite potential stabilizing interventions from China’s central bank.

The interplay of these dynamics with broader economic policies, such as the Federal Reserve's rate-cutting strategy, raises concerns about stagflation, which could arise from extensive tariffs, although moderate inflationary effects are projected in their baseline scenario.