FX168 Financial News (Asia Pacific) News Former US President and Republican presidential candidate Donald Trump (Donald Trump) proposed imposing a general tariff of 10% on imported products from all countries, while imposing a 60% or higher tariff on Chinese products. Barclays warns that this will reduce earnings of S&P 500 companies by 3.2% in 2025, and that a full trade war could break out.

Strategists estimate that if other countries take similar measures to retaliate, these companies' profits could fall by 1.5%.

However, the impact on European companies is likely to be more severe. Barclays Bank said that a full-blown trade war may drag down European companies' profit growth by “high single digits.” According to data compiled by Bloomberg, analysts on average expect profits from the Stoke Europe 600 Index constituent stocks to increase by 8.5% next year.

(Source: Bloomberg)

In the US, companies in the materials, non-essential consumer goods, industrial, technology and healthcare industries face the greatest risk due to their reliance on global supply chains, strategists said.

In Europe, Italian and German companies that produce transportation equipment, automotive products, beverages, and chemicals are likely to be hit harder as they contribute to the EU's trade surplus with the US.

Brian Hughes (Brian Hughes), a senior adviser to the Trump campaign, said in a statement: “Trump's policies will promote growth, reduce inflation, stimulate American manufacturing, and protect our working people from policies that favor other countries.”

“Just like 2016, Wall Street's predictions suggest that Trump's policies will cause economic growth to slow and inflation to rise,” he said. “Real growth and employment growth have far surpassed these expectations.”

Strategists warned that although the direct impact of tariffs may be limited, the ripple effects of rising prices and slowing economic growth could cause greater damage to businesses.

They said, “Although the new tariff proposal will have a slight direct negative impact on corporate profits, the secondary effects of rising cost inflation and slowing economic growth will be a gradual resistance.”

Barclays said that aside from stocks, long-term US Treasury yields may decline as tariffs inhibit economic growth, and if a 10% tariff is imposed on all imported US goods and no retaliation measures are taken, the US dollar may appreciate at least 3% to 4% against a basket of other major currencies.

Barclays foreign exchange strategists pointed out that the impact of US tariffs will mainly be reflected in economies with huge trade surpluses with the US, such as China, rather than the Eurozone, which has a more balanced relationship with the US. They wrote that if the US imposes 60% tariffs on Chinese imports, the yuan could depreciate by about 3% even if China takes retaliatory measures.

As inflation is likely to rise and the pace of the Fed's interest rate cut slows, the front end of the yield curve may be sold off. However, the strategist said that up to now, the market is unlikely to expect a sharp price fluctuation because the indicator measuring the five-year inflation forecast is currently near its lowest level since 2020.

However, Barclays strategists pointed out that at the long end of the treasury bond yield curve, as market expectations for growth are lowered, the impact of tariffs on the economy may eventually lower yields, and eventually the Federal Reserve will further relax monetary policy. They pointed out that assuming a 60% tariff on imported goods from China and a 10% tariff on the rest of the world, the actual US economy could be hit by as much as 1.4 percentage points.

They said that in the credit market, US investment-grade notes in the fields of pharmaceuticals, aerospace and defense, construction materials, and retail are “highly exposed” to tariff increases, even though current prices do not reflect much risk.

They added that in Europe, although investment-grade credit “may initially fall into trouble due to increased interest rate fluctuations,” economic growth shocks will impact high-yield bonds and these two types of cyclical bonds and auto bonds.