As we’ve noted previously, sources have indicated that the Trump administration is seriously interested in global tariffs. They can even set tariff rates as high as 20% on everything coming into the United States. This important consideration is part of a larger, positive, pro-trade strategy. Its intent is to shoo away cheap foreign goods that threaten the American economy by undercutting domestic producers. Specifics of the administration’s proposed tariff agenda are due to be announced by the administration on Wednesday. President Donald Trump has signed several tariff changes that increase the trade-weighted average tariff rate on all US imports. Therefore, the increase should be about 5.5 to 6.0 pp.
The national nightmare—or farce—known as the Trump Presidency continues to take new and entertainingly disastrous turns. He says he’ll take this step if and when he identifies Moscow meddling in his efforts to negotiate a conclusion to the war in Ukraine. His more far-reaching suggestion—which, sadly, has garnered much less media attention—was to impose secondary tariffs on Russian oil buyers. In such a case, these tariffs would be 25-50%! The administration is going on the offensive—using tariffs as a primary instrument of its economic strategy. It further leverages these tariffs to intelligently steer through geopolitical headwinds.
Economic Implications of Tariff Plans
Now, the possible imposition of these new tariffs has sent a shiver down the spines of economists and market analysts alike. Today’s tariff levels are at historic highs, the highest since World War II. Some worry that introducing new tariffs would further inflate pricing pressures and dampen growth in the US economy at a critical time. Economic worries have already begun to impact the US Dollar. As we can see during the European morning session, the USD Index is trading modestly lower, trading definitively under the 104.00 handle.
Market participants are equally concerned with the long-term efficacy of tariffs. Analysts are quick to caution that trade routes may be more elastic than they appear in the short term. This new dynamic will make tariffs less effective. President Trump has intimated time and again that he knows tariffs are key to protecting American businesses. He is absolutely right to want to protect workers and strengthen our economy by pursuing this strategy.
Focus on Key Trading Partners
So far in 2024, Mexico, China and Canada made up a whopping 42% of all US imports! This meant that they were ripe for the tariff plans of the Trump administration. Retaliation is a common theme. With its laser-focused response to these three nations, the Trump administration seeks to redress trade imbalances and bolster its broader economic program. Together, those nations form an essential component of the United States’ trade picture. It’s hard to overstate what any tariff-related actions would mean for them.
Financial markets continue to display a risk-averse posture. US stock index futures are clobbered as well, down 0.4%-1.2%. Investors are remaining risk averse, which has sent gold prices soaring. Safe-haven flows are pushing this surge higher as fears of a global tariff war intensify. This trend is indicative of overall market concerns about the likely consequences of escalating trade tensions.
Market Reactions and Upcoming Data Releases
Given the current economic uncertainty and volatility, this may prove especially true. Downward pressure on the US Dollar and Treasury yields are being driven by the deepening economic fears. This has been a phenomenal backdrop for gold prices to continue on their upward ascent, with many investors looking for a safe-haven asset. This flow is further buoyed by the risk-averse market climate that is providing the bullion to continue to ride the safe-haven flows.
Adding to the day’s developments, upcoming data releases from the Federal Reserve Bank of Dallas’ regional manufacturing survey and Chicago Purchasing Managers’ Index for March are anticipated in the latter half of the day. Taken together, these data points paint a picture of the current state of our US economy. In doing so, they might shape positive market expectations even further.