News reports that President Donald Trump has narrowed the focus of April 2 "Liberation Day" tariffs sent the S&P 500 into rally mode early Monday. That day will now be devoted to unveiling reciprocal tariffs meant to level the playing field with countries that have a big trade surplus with the U.S. Both The Wall Street Journal and Bloomberg reported that plans to roll out tariffs on autos, semiconductors and prescription drugs on the same day have been shelved for now.
The S&P 500 and Nasdaq are still awaiting a follow-through day that might signal a market change and a tradable rebound.
Trump Tariffs Silver Linings?
Wall Street turns on any hint that Trump will settle on an approach to tariffs that's more moderate than his stated intention to raise trillions in revenue and rebalance global trade.
On Friday, Trump stressed that there will be "flexibility" with the tariffs announced on April 2. That helped lift the S&P 500 to a positive close with a late-session rally. However, "flexibility" is kind of the whole point of reciprocal Trump tariffs. The aim is to push back against what are deemed to be unfair trade practices engaged in by individual countries or trading blocs. Those practices might include tariffs or other market protections, government subsidies and even value-added-taxes.
The idea is that countries will have an opportunity to negotiate down the reciprocal tariffs they face by easing their own trade-related policies.
Trump Tariffs To Target 'Dirty 15'
In another possible good sign, the Trump administration has indicated that reciprocal tariffs won't be universal in scope. Treasury Secretary Scott Bessent said last week that reciprocal tariffs will target what he called the "dirty 15," meaning the 15% of trading partners with which the U.S. runs a big trade deficit.
That makes sense, because it's hard to make a case for applying reciprocal tariffs to countries with which the U.S. has balanced trade or even runs a surplus.
The German Marshall Fund think tank highlighted a dozen trading partners whose goods trade surplus with the U.S. in 2024 makes them likely members of the "dirty 15." They include China ($295 billion surplus), the European Union ($236 billion), Mexico ($172 billion), Vietnam ($123.5 billion), Taiwan ($74 billion), Japan ($68.5 billion), South Korea ($66 billion), Canada ($63 billion), India ($46 billion), Thailand ($46 billion), Switzerland ($38.5 billion) and Malaysia ($25 billion).
While the narrowing of the targets of reciprocal Trump tariffs suggests moderation, those 12 trading partners accounted for nearly $2.8 trillion in U.S. goods imports last year, or more than 80% of the total.
Industry-Specific Trump Tariffs
The Wall Street Journal wrote that the White House didn't respond to a question as to whether industry-specific, or sectoral, tariffs would still be announced after April 2.
Trump first announced on Feb. 19 that tariffs of 25% could apply as soon as April 2 to imports from three industries that are major contributors to the U.S. trade deficit: pharmaceuticals, autos and semiconductors.
Trump had said that tariffs on those industries would be "in the neighborhood of 25%" and could "go substantially higher over the course of the year. He added that there would be a phase-in period to give companies a chance to respond by boosting domestic production.
Here's why the "no comment" from the White House shouldn't be read as good news. First of all, as long as the possibility of these industry tariffs remains, many of the countries hit with reciprocal tariffs won't be willing to strike a bargain with the U.S., when another tariff barrage may be around the corner.
"It is hard to imagine that the sectoral tariffs won't eventually take effect in some form," Brad Setser, senior fellow at the Council on Foreign Relations posted on X. The implication of the delay may be "a prolonged period of uncertainty."
Secondly, there's little reason to think that Trump's big-picture view has changed. One of the reasons he's determined to enact tariffs globally is that China has worked to evade Trump tariffs imposed in 2018 and 2019 by rerouting exports through a third country or establishing base of production in places like Mexico.
In other words, by focusing his fire on the "dirty 15," Trump doesn't want to open the door to using the "clean 85" as a base of production for autos, chips and prescription drugs.
Setser wrote that trade is bound to evolve under reciprocal tariffs, noting that the UK, currently a surplus country, would be "an obvious workaround for tariffs on the EU."
S&P 500
The S&P 500 is climbing 1.6% in midday Monday stock market action. On Friday, the S&P 500 scratched out a 0.1% gain and 0.5% gain for the week, ending a four-week losing streak.
The S&P 500 finished on Friday 7.8% below its Feb. 19 all-time closing high.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
