Trump tariffs: back and forth

Trump backtracks...

Donald Trump was obviously impressed by the extreme market movements triggered by his aggressive tariff policy; after all, the US stock market had plunged by around 15% in a few days (as measured by the S&P 500), and the ten-year yield rose by 50 basis points. Trump therefore announced a 90-day pause for the “reciprocal” tariffs yesterday. During this period, these are set uniformly to 10%. However, the sectoral tariffs of 25% will continue to apply to autos, auto parts, aluminum and steel. Financial markets have reacted euphorically to Trump's announcement, with US stock indices rising 10-12% (“What a day,” to quote Trump).

Higher reciprocal rates (e.g. 20% for the EU and 46% for Vietnam) had been planned for countries with which the US has a trade deficit. Donald Trump cited the fact that 75 countries had already approached the US to negotiate a solution to trade issues. He particularly emphasized that these countries had so far refrained from countermeasures.

However, different rules apply to China: tariffs on Chinese goods will be increased to 125% with immediate effect. This is a consequence of the “lack of respect” that China shows towards world markets, according to Mr. Trump. Trump hopes that China will soon come to its senses and reach out to the US. So far, however, China has shown little willingness to give in to American pressure; after all, it does not want to lose its face. Whether a quick agreement can be reached here is therefore at least uncertain. However, it is also clear that a longer-lasting US tariff of 125% on Chinese imports or of 84% on Chinese imports from the US would cause bilateral trade to collapse completely. This would be too costly for both sides, which is why we expect tariffs to be reduced in the medium term.

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