Investing.com – The timeline for a potential new trade war, as discussed by analysts at UBS, appears to hinge on a multi-stage process that reflects political maneuverings and economic implications.
UBS analysts categorize the progress into distinct phases that are likely to unfold throughout 2025, starting with what they call the “Tweet Phase,” escalating to the “Imposition Phase,” and eventually moving into the “Impact Phase.”
The “tweet phase,” according to UBS, is already underway, characterized by public statements and claims via social media.
These early announcements often serve to define negotiating positions and put pressure on trading partners even before formal action is taken.
The “imposition phase” is expected to begin in the first quarter of 2025. During this phase, the legal basis for imposing the tariffs will be established, requiring procedural steps, public comment, and time to formulate measures that can withstand legal scrutiny.
UBS expects that although some preparatory work may already be underway, the timeline for this phase will depend on management priorities and the need for careful implementation.
After imposition, the “impact phase” is expected to begin from Q2 onwards.
UBS notes that companies, aware of the risks, are more likely to engage in warehousing and inventory management to mitigate short-term disruptions. However, broader economic impacts, such as lower trade volumes and slower growth, could emerge even before corporate profits reflect the full burden of costs associated with tariffs.
The parallel “negotiation phase” is expected to continue throughout the year. UBS highlights the potential for ongoing talks between trading partners aimed at either defusing tensions or responding with retaliatory measures.
For example, China's recent moves to restrict its exports of critical minerals in response to US actions underscore how trade policies can remain largely transaction-based and subject to sudden shifts.
Despite the uncertainty, UBS analysts also stress that the response of global markets and trading partners could significantly shape the course of this conflict. They cite President-elect Donald Trump's threats to impose 100% tariffs on BRICS countries unless specific conditions are met, a move they see as unlikely to materialize but indicative of the heightened rhetoric surrounding trade policy.
In addition to the timeline, UBS provides insight into the potential economic impacts of the new tariffs. Emerging market currencies, particularly the Japanese yen, are expected to experience increased volatility and pressure as a result of lower trade volume and investor risk aversion.
The yuan may face additional pressure, similar to patterns observed during previous trade tensions, although Chinese central bank interventions are likely to provide some level of stability.
The note also addresses how these dynamics intersect with broader economic policies, including the Federal Reserve's interest rate cutting strategy and its impact on US Treasury yields.
UBS warns that more comprehensive tariffs could lead to the risk of stagflation – a toxic combination of high inflation and low growth – although its base case scenario suggests moderate inflationary effects.
