So far the market reaction to President Donald Trump’s additional tariffs has been muted. Its sanguine tone reflects the general investor belief that trade peace will still emerge in the not too distant future. Should this consensus prove misguided, and the tariff regime remains or intensifies, there will likely be implications for both financial markets and the real economy. The additional tariffs come at a time when global trade volumes are already plunging. According to the Dutch trade monitor, the Bureau for Economic Policy Analysis, in the three months through February global trade volumes fell as their fastest pace in a decade. Whilst the global economy could adapt to some extent, through rerouting of trade and substitution, we would expect high levels of tariffs, if sustained, to result in higher prices and weigh on global trade and growth. If the US Federal Reserve reacted to this environment by applying accommodative monetary policy through lowering its benchmark interest rate, we would expect to see nominal interest rates move lower too. The price increases resulting from trade restrictions would contribute to higher inflation and all else being equal, real interest rates would move lower. In this scenario, we would expect the gold price, which tends to move inversely to real interest rates, to move higher.