U.S. Tariffs and What We Know
What can we say for sure?
As Heraclitus said, “The only constant is change.” And never has this axiom been writ so large on geopolitics and the U.S. economy as the current tariff situation. To make sense of the situation, let’s review what has happened in the last few months and what we know today.
U.S. Tariffs Right Now
"Liberation Day" Tariffs: On April 2nd, President Trump announced a sweeping set of new tariffs dubbed the "Liberation Day" tariffs. These new tariffs included a universal 10% tariff on all imports (excluding Canada and Mexico) and higher "reciprocal" tariffs on approximately 60 countries. Reciprocal tariffs refer to 2 countries who charge each other the same tariff rate on products. Additionally, the Liberation Day tariffs amounted to 54% on Chinese goods which along with existing duties, could push the effective rate on some Chinese imports to as high as 245%.
Trade War Escalation with China: In response to the new tariffs, China imposed retaliatory tariffs of up to 125% on American goods. The U.S. countered by increasing tariffs on Chinese imports to 145%. President Trump has indicated that while these tariffs will "come down," they "won't be zero.”
Tariffs on Canada and Mexico: Earlier in the year, the U.S. imposed a 25% tariff on most goods from Canada and Mexico, citing concerns over drug trafficking and border security. Both countries have responded with retaliatory measures, leading to strained trade relations.
Secondary Tariffs on Venezuelan Oil Imports: Additionally, President Trump issued an executive order which imposed a 25% tariff on all goods imported from countries that purchase Venezuelan oil, aiming to pressure nations supporting Venezuela's oil sector.1
Market Responses to the New Tariffs
Forecasted U.S. Impacts; Inflation and Consumer Prices: Major companies like Target, Walmart, and Ford announced price increases due to higher import costs. Federal Reserve Chair Jerome Powell has acknowledged that the scale of the tariffs exceeds forecasts, with pricing impacts remaining uncertain. The 2 areas of concern with these new tariffs are Inflation and Stock Market Shifts.
Recession Risk: A Reuters poll indicates a 45% chance of a U.S. recession within the next year, up from 25% in March. Economists have downgraded growth forecasts and expect inflation to remain above the Federal Reserve's 2% target until at least 2027.2
Global Economic Concerns: The International Monetary Fund warns that the tariffs could lead to a global economic slowdown, with projections of global public debt surpassing 100% of GDP by 2030.
What Might This Mean for U.S. Retailers?
Rising Costs and Price Increases: Major retailers like Walmart and Target, which source a sizable portion of their inventory from China, are grappling with increased import costs. CPG companies such as Procter & Gamble have warned of impending price hikes on everyday consumer products due to the tariffs.3
Supply Chain Disruptions: U.S. Retailers have been stockpiling inventory to mitigate the impact of tariffs, leading to increased storage costs and potential overstock issues. The elimination of the "de minimis" exemption for low-value imports from China is causing significant challenges for e-commerce businesses.4 Additionally, the market is seeing a glut of shipping containers due to stalled global shipping. This has resulted in falling freight rates, full container depots, and a decrease in demand for container shipping services.5
Impact on Small Businesses: Small retailers are disproportionately affected, lacking the financial flexibility to absorb increased costs, leading to reduced profit margins and higher prices for consumers. Some small businesses are taking legal action against the administration’s tariff strategy, citing operational challenges and declining revenues.
The End Game
President Trump has indicated that the End Game will be at least a 50% tariff on all imported goods to the U.S. Thus, while we don’t know where tariff rates will land or the impact they’ll have on individual industries or products, we do know that retailers of all sizes will be impacted. And we know the situation is all subject to change. In the meantime, Paradygm will remain informed and work with clients to forecast the impacts.
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Sources:
Wikipedia
Reuters
Barrons
Business Insider
CNN
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