This year is turning out to be an interesting one for the financial markets. When it started, optimism around the world was rising. The United States had just passed the massive tax reform package. In the EU, traders expected calm, in a year when there was just one election. In the Middle East, we expected a calm year.
The year has changed significantly. The United States has moved to levy tariffs imported steel and aluminum. In Europe, countries like Italy and Spain have been caught in a political crisis. In the Middle East, the region continues to face a myriad of challenges.
One of the biggest challenges this year has been from the United States. After passing the historic tax reform package, Donald Trump changed. He fired his closest advisors who championed for globalism. He fired his secretary of the state, Rex Tillerson. His Chief Economic Advisor, Gary Cohn resign after he moved to impose tariffs.
He started by announcing that the country would start imposing tariffs on imported steel and aluminum. The tariffs would apply to all countries that export their steel and aluminum to the United States. He however gave exemptions to a few allies with hopes of doing a deal with these countries. South Korea gave in and accepted quotas on its imports. It also opened up the South Korean market to US motor vehicles. Australia was given an exemption too.
Last week, he announced that tariffs would be initiated on the European Union, Canada, and Mexico. This will hit some of these countries hard. The US too will be affected as companies raise prices on products made from aluminum and steel. The country will also be affected, albeit slightly, when the other companies retaliate.
In the next one week, the US will initiate tariffs on China. The tariffs will be of goods valued at more than $50 billion. Already, China has already offered several concessions to the US. However, it has promised to reiterate and remove the concessions if the US goes on with its tariffs. The US is also nearing another conflict with China on Taiwan. The country has asked airlines not to comply with the Chinese requirements about Taiwan. A senior official of the Trump administration will also visit Taiwan next week in a move that will likely anger China.
Another risk this year is from Europe, where populism is rising. In Italy, the country is preparing to be led by populist parties who have vowed to deport thousands of people, close their borders, remove sanctions on Russia, and possibly exit the EU. The risk for populism will continue in Europe, especially if the UK is successful in exiting the EU.
In the Middle East, the world is facing the challenge of an emerging Iran. The US exited the Iran deal in May, which has presented the world with a risk that was not there before. Iran is now counting on the European Union, China, and Russia to fill the gap left by the United States. This gap will be difficult to fill, especially if the US starts to sanction European firms doing business with the country. Already, many companies have announced that they will stop doing business with Iran. This is because the US is still the biggest economy in the world and offers better opportunities for any company to grow.