Trump's Tariff Deadline Looms with Uncertainty

With less than two days remaining before Donald Trump's self-imposed deadline of February 1 for imposing tariffs on Canada, Mexico, and China, economic observers and world leaders are struggling to plan amidst heightened uncertainty.

On Thursday, Trump reiterated his plans for a 25% tariff on imports from Mexico and Canada, warning against America's top trading partners. However, he added to the uncertainty by indicating that certain provisions, including tariffs on oil, may not be finalized.

"We may or may not," Trump told reporters, leaving many in "wait-and-see mode." This uncertainty could have significant implications for business decisions, as Charles Schwab's Kevin Gordon noted with reference to the recent trade war with Colombia.

Gordon emphasized that "that nature of policy-making is what causes companies to maybe take a step back and halt their spending."

Leaders in Canada and Mexico have expressed confusion and frustration, with Trump threatening 25% tariffs on Saturday over migration and fentanyl concerns. China could also be subject to 10% duties on similar grounds.

Mixed Signals and 'Waiting Mode'

The Trump administration's statements this week have been closely scrutinized, often providing little clarity. Commerce secretary nominee Howard Lutnick initially supported broad tariffs but later suggested a potential off-ramp if Mexico addressed migration and drug issues.

Treasury Secretary Scott Bessent reportedly proposed a market-friendly plan with a lower initial tariff rate of 2.5% and gradual increases, but Trump promptly dismissed the idea.

The lack of clarity has left officials, from Fed Chairman Jerome Powell to the president of Mexico, in "waiting mode." Powell acknowledged the "very, very wide" range of possibilities and the uncertainty surrounding the impact on consumers.

Potential Economic Consequences

Economists predict that full implementation and sustained enforcement of Trump's proposed tariffs could plunge both Canada and Mexico into recession. For the US economy, Deutsche Bank anticipates a dent in growth and inflationary pressures.

Wolfe Research's Tobin Marcus highlights the importance of considering the duration of tariff threats, particularly for Canada and Mexico. He suggests that these threats may serve as a "negotiation tool," reducing the likelihood of prolonged economic pain.

However, Marcus emphasizes the uncertainties surrounding the weekend deadline, noting that Trump's team remains determined to impose tariffs. He concludes that "big but slow" remains the mantra for China and global tariffs.