Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's 7 o'clock in the morning London time on Friday the 16th of January. The United States and Taiwan have agreed that US importers will pay a 15% tariff on imports from Taiwan, with a pledge from semiconductor companies to invest half a trillion dollars in the United States.
The 15% number is convenient. If the US Supreme Court rules IEPA tariffs to be illegal, the alternative policy options for US President Trump focus around applying a 15% universal tariff. The pledges to invest in the United States are unlikely to have any more weight than other countries' pledges to invest in the United States.
Existing investment plans can be dressed up as meeting the target, and on the basis of the evidence to date, there's little reason to suppose that anyone is going to be going around to check on whether further funds have been committed. The markets are unlikely to be too animated by this deal over the medium term because of the uncertainty about the US Supreme Court ruling, and because tariffs remain an unpredictable instrument, as demonstrated by this week's assertion from US President Trump of a widespread additional 25% tariff on imports from those countries that deal with Iran, an assertion that no one seems to have taken seriously. German final December consumer price inflation data was unchanged from the initial estimate, and there's little prospect of the Italians revising their data when the figures come out later today.
These numbers were almost never revised from the first guess, and are of almost no interest to financial markets. US industrial production and manufacturing production data are both due. Industrial production has been getting a boost from rising electricity demand, but of course the consequent rising electricity prices are a contribution to the affordability crisis in the United States, and may not be received so well politically.
This morning Trump urged that technology companies be required to bid for electricity supply in the mid-Atlantic region in a special auction. The idea is that this would secure funding for the construction of new power plants. The problem is that there may not actually be enough equipment available in the next few years to construct new power plants, and that supply constraint could present a challenge when the US administration seems so desperate to try and address affordability concerns.
For US manufacturing output, a lot of the sectors remain below 2024 output levels. Autos, appliances, furniture, etc. do not appear to have seen any increase in domestic production in consequence of the tariffs, indeed the reverse. The gains in manufacturing have tended to be concentrated in a relatively small number of sectors, and global trends, for example the universal rise in demand for chips and electronics, have helped support areas like the computer sector specifically.
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