We know the Trump administration is seriously dedicated to getting short and long-term fair and reciprocal tariffs. This bold move has profoundly impacted the U.S. trade environment. With the administration’s recent actions, the trade-weighted average tariff rate on all U.S. imports has risen by approximately 5.5-6.0 percentage points. This new increase brings current tariff levels to at or around the highest level since World War II. We are worried about what its impacts could be on the trade deficit and the larger U.S. economy. Next week, more announcements on tariffs are likely, as the next piece in a brewing strategy to alter U.S. trade policy continues to unfold.
The tariffs are quickly becoming a powerful political force gone awry for the Trump administration. They are desperately trying to address the much-bemoaned U.S. trade deficit, which is largely offset by incoming capital. This capital inflow, and not the trade deficit, is what has in the past led to dollar appreciation over the last decade. A sudden recent dollar depreciation has fueled new concerns about an economic downturn. Industry analysts identify tariffs as a primary driver for these worries.
“The president’s very clear on fair and reciprocal tariffs,” – Miran
Even worse, the Trump administration has made tariffs a central pillar of their trade policy. There are major economic consequences of this strategy – they are all negative. Analysts and advocates alike expect these forthcoming tariff announcements to shape the very state of our economy today.
“Next week’s tariff announcements will clearly impact all of this and it’s unclear what plans are actually coming.” – Rockefeller Morning Briefing
The administration’s singular obsession with the U.S. trade deficit is famous. They are very much in real-time, working to refocus the balance of trade to better align with domestic economic priorities. Yet foreign money flowing into U.S. markets—especially in risky stocks—makes this mission difficult.
“What’s not in doubt is the degree to which U.S. markets are knee-deep in foreign investment that’s been increasingly in more volatile equities rather than traditionally stickier fixed income assets.” – Rockefeller Morning Briefing
There is increasing fear that undoing these capital flows will be damaging to Americans. At the same time, it risks damaging the asset price inflation that for decades investors have come to treasure.
“Reversing these flows could be painful for Americans as it could seriously undermine the asset price inflation that has supported and enriched many.” – Rockefeller Morning Briefing
At the same time, the U.S. dollar is weakening, muddling the economic picture further. If foreign investments continue to drop off, Wall Street may be in for some very dire consequences.
“If foreign money continues to turn tail, it could be a rough year ahead for Wall Street.” – Rockefeller Morning Briefing
In the backdrop, the euro continues to strengthen, albeit with a loss of upside momentum with a ceiling at 1.0865. This change to the currency dynamic is another material change to the international economic order.
In the meantime, the Trump administration is preparing to announce its second round of tariff actions. Economists and market observers can only look and wonder how these proposed changes might shake up domestic and global markets.
“And yet the paper has attracted a great deal of interest from economists and other observers at home and abroad who are trying to understand the pain inflicted by the tariffs as part of a broader vision.” – Miran