Trump Tariffs: Uncertainty Looms, Markets in Limbo
US President Donald Trump has announced plans to impose tariffs, but details remain unclear. The potential implications have left markets in a state of uncertainty.
Trump's deadline for implementing 25% tariffs on Canada and Mexico, and 10% duties on China, is approaching. However, he has hinted that certain provisions, including tariffs on oil, are subject to change.
Mixed signals from Trump's administration have further fueled the confusion. Yale Budget Lab's Ernie Tedeschi has noted the "considerable uncertainty about President Trump's Trade agenda for 2025."
According to Tedeschi, Trump's proposals could increase average effective tariff rates by 7-27 percentage points, potentially leading to the highest tariffs since 1900. "This would represent the most dramatic shift in both trade and tax policy in the US in generations," he said.
Markets are particularly concerned about the potential impact of tariffs on inflation and the Federal Reserve's interest rate plans. Deutsche Bank economist Matthew Luzzetti predicts that without tariffs, core PCE inflation would decline to 2.5% by 2025, aligning with the Fed's target.
However, with 25% tariffs on Mexico and Canada, Luzzetti anticipates core PCE inflation to exceed 3%, potentially prompting the Fed to reconsider interest rate hikes.
Fed Chair Jerome Powell has acknowledged the heightened uncertainty, citing the "significant policy shifts" including tariffs. He emphasized the lack of clarity regarding which goods and countries will be affected, as well as the potential for retaliation and economic transmission.
"We'll just have to wait and see how it goes," Powell said.