Former President Donald Trump has raised deep doubts about his ability to de-escalate the 3-year-old tariff war. His intentions to remedy the situation have raised more questions than answers. Market participants were heartened after his comments, which indicated the administration might be softening its long-standing tariff stance. From the looks of it, the White House is prepared to provide more flexibility. They’ll leave the 10% baseline tariff rate unchanged.
Trump’s aggressive recent rhetoric is clearly a marker for a standstill at the June 2019 ministerial against any new tariff changes. However, even with this pause, the tariffs are poised to continue raising inflationary pressures in the United States. That trend will likely continue for a long time to come. Analysts caution that even under Trump’s policies, big cuts might be unable to clear Congress for the remainder of the year. On top of that, he has been vocally against any phased-in cuts.
What’s particularly welcome about Trump’s comments is that he is finally acknowledging that the tariffs will cause higher inflation and U.S. unemployment rates. He cautioned that these economic pressures might eclipse any advances gained through the tariff strategy. He said the Federal Reserve should resist calls to start cutting interest rates. This is particularly the case with our constrained economy.
In answer to Trump’s comments, Federal Reserve Chairman Jerome Powell struck a positive note on the economy. He painted an overall “solid” economic picture, even while conceding a negative GDP print in the first quarter. Powell said this drop was due to an “unusual swing” in global trade patterns, not from any foundational softening in the economy.
Concessions have in fact been given to certain sectors. It’s the broader tariff approach that is still having a major impact on setting our economic hopes and fears for the future. Market analysts are all ears because the fate of these developments could have profoundly positive implications for both inflation — the feds primary concern — and the unemployment rate.