Reuters reported the U.S. Commerce Department has submitted draft recommendations to the White House on its investigation into whether to impose tariffs of up to 25 percent on imported cars and auto parts on national security grounds, two administration officials said.

The “Section 232” recommendations on ensuring a healthy U.S. auto industry are undergoing an inter-agency review process and will be discussed.

The White House has pledged not to move forward with imposing tariffs on the European Union or Japan as long as it is making constructive progress in trade talks.

Meanwhile, as the U.S. stock market illustrated by the Dow's 600-point plunge, equity investors don’t like new tariffs.

A lot of the tariffs to date have been avoided, but as more tariffs are imposed on U.S. consumers, they become harder to dodge,

Because the overwhelming majority of global trade is conducted by large listed companies, the consequences are disproportionally bad for equities, far more than they are for the economy.

Aside from that, the economic prospects for the U.S. continue to be healthy and the Federal Reserve would be “loco” to ignore that.

U.S. – China Trade Talks

U.S. Treasury Secretary Steven Mnuchin has resumed talks with China Vice-Premier Liu He, with the two speaking by telephone last Friday, November 9, The Wall Street Journal reported yesterday, citing sources.

The conversation did not lead to any breakthrough to resolve the tariff dispute between the U.S. and China.

The situation for now is that the U.S. demands before negotiations on a trade deal can start, China has to present a concrete proposal from their side, which Chinese officials are resisting and say they want to talk first before making a formal proposal. They worry that once they make a formal offer, they will lose leverage.

Markets are likely to be cautious in reacting to that news, because, for one thing, Mnuchin is not especially important on trade. It is President Donald Trump who makes the decisions on trade.

Mnuchin’s role here is largely “decorative.”

There is also a fear that “if” Trump does do a deal with China, Trump will then need something “else” to attack.

The president thrives as an anti-politician defining policies as being against something, and then rallying support against that “threat.”

San Francisco Fed President Daly Confirms Further Gradual Normalization of Fed Policy.

San Francisco Fed President Mary Daly, who is also a FOMC voter, confirmed yesterday in a prepared speech the continuation of the actual Fed policy of further “gradual tightening.”

Her speech reads: “… with both of the Fed’s goals essentially met, merit the gradual normalization of monetary policy … the U.S. economy is in very good shape. Keeping it that way requires continuing on the path of consistent, thoughtful monetary policy. In conjunction with policies designed to encourage workforce participation, this also may help boost our economy’s longer-term growth potential, thereby supporting economic advancement for all Americans.”

I think we could see further rate hikes into next year, which should further boost the dollar, which isn't good news for emerging markets. As a result, I don't think it's the right time to step back in as I still expect more volatility.

Investors will have to re-evaluate their positions in U.S. dollars the day the Fed pauses and look deeper into the reasons why the Fed halted the rate hikes.

In the meantime, the divergence with the other major Central Banks will stay in place and even grow.

Brexit Saga Continuous

Meanwhile, the interminable tedious process of separating the UK and the EU (Brexit) lurches on with both sides saying the “end is in sight”.

That would be reassuring if investors could have any confidence that the UK Cabinet or the UK Parliament would agree to a deal on the “current” terms.

There is more and more talk about the option whereby a deal is rejected and then re-submitted to Parliament with cosmetic changes before it is past.

In the meantime, the British pound (GBP) has stabilized somewhat around $1.29.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.