In the latest expansion of Trump tariffs, President Donald Trump signed an executive order Thursday designed to level the playing field with trade partners via what he terms "reciprocal" tariffs. In theory, the approach could offer other countries a way of avoiding the tariffs by simply bringing down their own trade barriers to U.S. products.
The S&P 500 is up solidly in Thursday afternoon stock market action. The complex new Trump tariffs could take some time to implement. It's possible that concern over inflation gives the Trump administration reason to take a deliberate approach.
Reciprocal Trump Tariffs Executive Order
President Trump is tapping Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer to devise "reciprocal" tariffs that are tailored to each trading partner. The tax won't simply reflect the import taxes other countries slap on imports from the U.S., but other factors that tilt the playing field. Those include government subsidies, value-added taxes and currency valuations.
This could take a while, and whatever they come up with is likely to be disputed aggressively by trading partners. Further, the reciprocal Trump tariffs are just part of a tariff barrage, including 25% tariffs on steel and aluminum, a 10% tariff on Chinese imports and threatened 25% tariffs on imports from Mexico and nonenergy imports from Canada.
Trump has also said that European Union tariffs are coming.
World Bank data show that South Korea and India are among the countries whose tariffs on the U.S. are much higher than tariffs imposed by the U.S. Peter Morici, University of Maryland business professor, noted in a MarketWatch column the risk that reciprocal tariffs could push key U.S. trade partners "into accommodations with Russia and China."
Trump Tariffs Inflation Impact
As Federal Reserve Chairman Jerome Powell has explained recently, the impact of tariffs on inflation is far from certain. It can depend on currency fluctuations, substitution of goods by consumers, and decisions by wholesalers and retailers about how much of a price increase they will pass along.
Deutsche Bank economists led by Justin Weidner wrote in a Monday note that Trump tariffs could push the Federal Reserve's main core inflation rate above 3.5% this year. That includes the impact of the steel and aluminum tariffs, the delayed tariffs on Canada and Mexico and Trump's new plan for "reciprocal" tariffs.
Citing World Bank data on the gap between the average U.S. tariff rate and that of its trading partners, Deutsche Bank figures reciprocal tariffs could boost the average tariff rate on imports by 3.3 percentage points. Such reciprocal tariffs, depending on how much was passed to customers, could boost inflation by 0.25 to 0.4 percentage point, they estimate.
The steel and aluminum Trump tariffs might add a bit less than one-tenth of a percentage point to the inflation rate, Deutsche Bank figures, though the impact would be much higher on autos and appliances.
S&P 500
The S&P 500 rose 1% in Thursday stock market action after Trump signed his executive order. The S&P 500 has shaken off Wednesday's hot consumer price index after more inflation data on Thursday confirmed that inflation is still falling. Trump tariffs, however, are expected to reverse the progress.
The S&P 500 finished on Thursday within a whisker of its Jan. 23 all-time record high.
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