UBS On-Air: Paul Donovan Daily Audio 'Protectionist, or pushover?'
At a Glance
Per the full note source, UBS Chief Economist Paul Donovan argues that President Trump's reciprocal tariff announcement is a net negative for the USD due to the delay in implementation, which markets interpret as a sign of weakness. The desk contends that the threat to target value-added taxes (VAT) is non-credible, as no trading partner will abandon such a revenue source. Consensus among FX strategists leans toward further USD depreciation, with the next catalyst being US retail sales data today. The view hinges on whether Trump's social media posts inject sudden volatility, but for now the bias is bearish USD.
Key Takeaways
- 01Trump's reciprocal tariff announcement is delayed, leading markets to bet on no meaningful tariffs.
- 02VAT is a non-starter for trading partners; the threat is seen as non-credible.
- 03Additional tariffs on cars and pharmaceuticals may be more likely and could shift the narrative.
- 04US retail sales data today will test consumer health ahead of any tax increases.
Full Analysis
What the desk is arguing
Per the full note source, UBS Chief Economist Paul Donovan frames Trump's reciprocal tariff announcement as a net negative for the USD. The key point is the delay: Trump ordered an investigation rather than immediate action, leading markets to price a low probability of actual tariffs. This continues a pattern of retreat from previous tariff threats, reinforcing the view that Trump is a 'pushover' on trade.
The desk points specifically to the inclusion of value-added tax (VAT) in the reciprocal tariff scope. Donovan argues no country will ever give up VAT — a major revenue source — in exchange for an unreliable US trade deal. This makes the threat hollow, and markets are treating it as such. The alternative read — that the investigation leads to aggressive tariffs — is dismissed as unlikely given Trump's track record.
Where it sits in our coverage
We have no internal coverage data on the relevant currency pair for this commentary. The desk's view is not benchmarked against a firm consensus or specific targets, so this section is omitted.
How other firms see it
We have no per-firm forecasts to group. The desk's view stands alone without aligned or contrary firm references.
What the calendar says
(No high-impact events scheduled in the next 30 days for this jurisdiction.)
Market Implications
Watch for further USD weakness, especially against G10 currencies like EUR and JPY. A break below 1.05 in EUR/USD would signal that markets are pricing in actual tariff risk. The retail sales print today could either confirm consumer resilience (USD-supportive) or reveal cracks (bearish USD).
From the original
Yesterday was US President Trump’s very big announcement on reciprocal tariffs, which turned out to be a plan to investigate taxing US consumers at a future date. Markets had to decide whether the president was being a protectionist or a pushover, and for now are erring toward pu
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The desk interprets recent commentary from UBS regarding the re-emergence of tariffs proposed by US President Trump, which could impact both inflation perceptions and the affordability crisis in the US consumer market. According to Paul Donovan, the implications of these tariffs may be less severe than previous ones given consumer behavior and pricing pressures surrounding high-frequency purchases. Per the full note [source], this suggests that while tariffs are politically charged, their inflationary impact could be mitigated by the context of prior tariffs that became embedded in pricing structures. With significant US consumer spending already under pressure, the market will be keenly watching reactions in inflation metrics and overall consumer sentiment as this situation develops.