Now picture this… US President Donald Trump has exclusively proposed cutting $163 billion from government programs. He’s taking aim in particular at health research, climate initiatives, and education. One thing that is perfectly clear is that the US today is embroiled in unprecedented and dangerous trade tensions. This action comes during heightened tensions with China and Japan. The US Customs and Border Protection agency recently implemented a new policy. It removes the $800 de minimis exemption for parcels originating from China and Hong Kong, risking further inflaming existing and future trade disputes.
Under the amended policy, mail packages from these areas will be subject to a steep 120 percent ad valorem duty or flat $100 per package fee. The fee is set to increase to $200 on June 1. This decision has raised concerns for innovators, businesses, and consumers alike. It threatens to greatly increase tariff costs on imported products.
Trade Negotiations and Tariffs
The White House National Economic Council (NEC) Director, Kevin Hassett, indicated that more than 20 countries have put forth substantial trade offers to the United States. That message was somewhat muddled by US Treasury Secretary Steven Mnuchin, who stressed the need for de-escalation of tariffs standoffs with China. He went on to say that lowering tariffs is a key part of making the economic relationship between the two countries more reciprocal.
China is now under a clear “assessment” of US trade negotiations, looking to be slow and deliberate in any near-term negotiations with the US. As of this writing, officials are closely monitoring what’s happening. They’re looking to figure out “which way the wind blows” before agreeing to enter negotiations to end the unexpected and unwarranted tariff stalemate. Our analysis goes deep into China’s strategic decision-making as it recalibrates its role in an increasingly fractious international trading order.
“Not in a situation where we have found common ground yet.” – Japan Prime Minister Yoshihide Suga
Japan’s Prime Minister Yoshihide Suga delivered his concerns about negotiations with the US just this morning. There’s a long way to go. Japan’s Finance Minister Shunichi Suzuki weighed in on their US Treasury holdings, referring to them as “a card in our trade negotiations.” He further suggested he might play that card depending on the course of future negotiations.
Market Reactions
US equity futures reflected investors’ concerns, opening in the red. This discouraging opening followed closely behind the hapless, downbeat fiscal forecasts and results from tech goliaths — Apple and Amazon. The ISM Manufacturing Prices Paid index for April came in at 69.8. This result was below the projected 73.0. This significant pullback in market performance reflects deeper concerns about economic stability in the face of rising trade tensions.
In Asia, market reactions varied significantly. Taiwan’s dollar, which became Asia’s best performing currency with a 2% jump, made its biggest intra-day move since 2011. South Korea’s Acting President, Lee Ju-ho, convened a national security council meeting. Their goal was to understand how the shifting trade landscape is affecting the country’s national interests.
Ongoing Developments
In the middle of these dramatic and confusing trade affairs, President Trump and Mexican President Claudia Sheinbaum seem to have struck a deal. Their Treasury, Finanze-, Wirtschaft- and Commerce-Ministers will work closely to improve the trade balance between the two countries. This bilateral engagement is part of a larger initiative to better address today’s complicated and oftentimes contentious international trade landscape while finding paths toward collaboration.
The backdrop of these negotiations has become even more complicated by global market uncertainties and domestic economic pressures. As countries look to find their place within a new order and reshape their approaches, the prospect for resolution is unclear.