Despite a miserable PPI report, bonds rallied with long-term yield dropping significantly. Tariff postponement is the likely reason.
Trump Orders Federal Agencies to Study Reciprocal Tariffs
The market has reacted negatively to Trump’s tariffs announcements and positively on tariff delays. Today we have another case in point.
After promising a tariff announcement today, the only news is Trump Orders Federal Agencies to Study Reciprocal Tariffs
President Trump on Thursday signed a memo on reciprocal trade, directing federal agencies to study how to adjust U.S. tariff rates to match existing duties and certain economic barriers enforced by other nations.
The order stops short of actually imposing the tariffs immediately, as many foreign capitals feared, and instead directs the Commerce Department and the U.S. trade representative to deliver reports on the steps to be taken to achieve reciprocal trading status. Commerce Secretary nominee Howard Lutnick said those studies should be completed by April 1.
“America runs its more than $1 trillion, pernicious trade deficit because the major exporting nations of the world attack our markets with punishing tariffs and even more punishing non-tariff barriers,” Navarro told reporters on Thursday.
It isn’t certain which countries would be the most affected by potential American reciprocal trade actions, but many of the nations with the highest tariff rates on U.S. goods today are countries such as India, Brazil, Vietnam, Argentina and many other Southeast Asian and African nations. Trump signed the order hours before a meeting with Indian Prime Minister Narendra Modi, whose nation was singled out by the White House on Thursday for its tariffs on U.S. exports.
It also wasn’t clear what legal authority Trump would use to impose the tariffs, though the White House indicated several laws would likely be deployed.
The eventual action could hit other, lower-tariff nations as well by taking into account non-trade barriers, such as taxes on American companies, government subsidies for companies in their home countries or regulations that prevent U.S. companies from doing business in foreign countries. Trump’s team will likely target nations with value-added taxes, such as European Union members. The president’s trade advisers have long viewed VATs an export subsidy because companies are given rebates when they export abroad.
Value-added taxes will be viewed as a tariff, Trump said in the Oval Office, adding that the EU has been tough on U.S. companies.
The focus on non-tariff barriers, in addition to duties, means nations such as Japan and members of the European Union could be on the hook for higher tariffs from the U.S. than the duties they impose on American goods. And it also means that nations such as China—which currently has a lower average tariff rate than the U.S., but a number of nontariff barriers—might face further tariffs on imports to the U.S.
Trump’s move on reciprocal trade could mean that his campaign pledge for across-the-board tariffs is less likely. Trump last week said he was leaning more toward reciprocal action than a “flat fee” tariff—a line backed up by those close to him. But the White House signaled Thursday the flat-fee option isn’t off the table.
Trade experts said this week that the reciprocal-trade action would dilute the World Trade Organization concept of “most favored nation” status, a principle of the organization that requires member nations to guarantee equal tariff and regulatory treatment to other members.
How Will Reciprocal Tariffs Work?
Reuters reports Trump outlines reciprocal tariff plan in latest bid to reshape trade on his terms
Howard Lutnick, Trump’s pick for Commerce secretary, said the administration would address each affected country one by one and said studies on the issue would be completed by April 1. That is also the deadline Trump set on his first day in office for Lutnick and other economic advisers to report to him with plans to reduce the chronic trade imbalances that Trump sees as a U.S. subsidy to other countries.
Trump, who campaigned on a pledge to bring down consumer prices, said prices could go up in the short term as a result of the moves. “Tariffs are great,” he said.
A White House official, who spoke to reporters before Trump’s event in the Oval Office, said the administration would study countries with the biggest trade surpluses and highest tariff rates first.
Trump’s tariffs would match the higher duties charged by other countries, he said, and would aim to counteract burdensome regulations, value-added taxes, government subsidies and exchange rate policies that can erect barriers to the flow of U.S. products to foreign markets.
Average Tariff Rates
Study Until April 1
Trump will study the issue until April 1. So tariffs are delayed for a minimum of 46 days.
Q: What countries will be hit?
A: I have already discussed, but I added India and the EU to my report.
Q: What’s Going on in the EU?
A: We have a trade deficit with Ireland of $87 billion. And we have a trade deficit with Germany of $85 billion. That is $172 billion of the $203 billion deficit with the EU.
Q: Ireland $87 billion?
A: Ireland is led by a big surge in pharmaceutical investment with significant sales aimed back at the American market.
The WSJ notes that the Central Bank of Ireland warned that a rise in U.S. tariffs on imports, or a cut in the tax rate on profits, could have a big impact on an economy in which almost one in 10 of those people who work for a business do so for a U.S. firm
US Balance of Trade Select Countries Plus the EU
For all Trump’s huffing and puffing over Canada, the US goods trade deficit is only $64 billion. The entire deficit (and then some) is oil imports at a cheap price, very beneficial to the US.
As for Ireland and Mexico, the US also benefits greatly.
Q: Are their any bright spots?
A: Canada, Mexico, Taiwan, and Ireland are all bright spots if you ask me.
Q: How does Trump see this?
A: Grim
But Trump did not like the market reaction to any of his tariff announcements nor the CPI report. But there is at least one country Trump is proud of.
Balance of Trade Goods Only Australia
Related Posts
On March 2, 2018 I posted Trump Tweets “Trade Wars are Good and Easy to Win”
If trade wars are good and easy to win, Why didn’t Trump win them then? And please note that Biden kept intact all of Trump’s tariffs and even added some.
September 26, 2024: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
If Trump imposed 60 percent tariffs on China, I believe all trade with China would cease.
The US would not collect a cent on those tariffs. That’s the good side actually because would be US consumers who paid the tax.
February 10, 2025: Trump to Impose 25 Percent Tariffs on Steel and Aluminum, Expect Higher Prices
All US consumers of steel and aluminum will pay higher prices, especially the automakers.
February 11, 2025: Trump’s Steel Tariffs Now Will Work as Good as the First Time
Q: How’s that? A: Very poorly.
Q: Is there anything good in this?
A: Yes, I am pleased to report that any US plans to invade Australia are on hold.
More seriously, reciprocal tariffs are a better approach than a global 20 percent blast as Trump repeatedly threatened.
And it’s certainly better than the 25 percent tariffs he threatened on Canada and Mexico.
However, reciprocal tariffs will not fix the deficit with China, Canada, or Mexico. So it will be interesting to see what he concocts.