Chart of the Week: Trump takes aim at currencies

Last week, Donald Trump announced via Twitter the restoration of tariffs on Brazilian and Argentinian steel and aluminium imports. The commodities were subject to one of his early rounds of blanket tariffs, but Brazil and Argentina received an exemption. Now that the two countries have been “presiding over a massive devaluation of their currencies”, they are being restored.

However, there is little evidence that they have been actively devaluing. In August, the Argentinean peso depreciated by around 30% following a poor result in the primary presidential elections for the pro-business incumbent, Mauricio Macri. In Brazil, the central bank has been steadily cutting interest rates to support a fragile recovery from a deep recession. As a result, investors have been moving money elsewhere, putting downward pressure on the real. Another factor in weaker emerging market currencies that cannot be ignored is the global uncertainty generated by American trade policy, causing investors to flock to dollar-denominated assets. We are in a vicious circle of punitive tariffs resulting in weaker emerging-market currencies, leading to further punitive tariffs.

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