Donald Trump's Tariffs: Day One Delay, But Escalation Looms

On his first day back at the White House, President Donald Trump refrained from implementing major tariff actions on his top economic initiative. However, he emphasized that significant new duties are imminent.

Tariffs on Mexico and Canada

"We are considering 25% tariffs on Mexico and Canada," Trump stated while signing executive orders in the Oval Office. He indicated that these tariffs could be imposed "on February 1."

Blanket Tariffs on the Table

Trump mentioned that blanket tariffs on all countries remain an option, suggesting that other nations also engage in unfair trade practices against the United States.

China Tariffs in Limbo

Regarding China, Trump declined to provide details on potential new tariffs. He stated that negotiations are ongoing but reiterated that tariffs are still on the table, even as the countries discuss the fate of social media app TikTok.

Metaphor for Overall Trade Policy

In his inaugural address, Trump promised to "protect American workers and families" by overhauling the trade system. He expressed his intention to "tariff and tax foreign countries to enrich our citizens."

Market Reaction

News of the delayed tariff actions initially boosted S&P 500 futures, but the market's reaction turned mixed following Trump's evening comments. Experts cautioned that the initial delay does not signal a long-term pause in trade action.

International Emergency Economic Powers Act (IEEPA)

One potential legal basis for Trump's tariffs is the IEEPA, which grants the president broad authority to address national security or economic threats. However, this route could face legal challenges.

Other Tariff Options

Trump may also use other provisions such as Section 301 and Section 232 tariffs, which have been more legally tested but may limit the president's ability to act swiftly or aggressively.

External Revenue Service

Trump advocated for the creation of an External Revenue Service to handle the expected revenue influx from the anticipated high tariffs.

Conclusion

Despite the initial delay, Trump's strong rhetoric and analysis from Capitol Economics suggest that tariffs are still on the horizon. Market volatility is likely to persist as the situation unfolds, with potential impacts on US dollar and equity performance.