Despite a miserable PPI report, bonds rallied with long-term yield dropping significantly. Tariff postponement is the likely reason.
Trump Orders Federal Agencies to Study Reciprocal Tariffs
The market has reacted negatively to Trump’s tariffs announcements and positively on tariff delays. Today we have another case in point.
After promising a tariff announcement today, the only news is Trump Orders Federal Agencies to Study Reciprocal Tariffs
President Trump on Thursday signed a memo on reciprocal trade, directing federal agencies to study how to adjust U.S. tariff rates to match existing duties and certain economic barriers enforced by other nations.
The order stops short of actually imposing the tariffs immediately, as many foreign capitals feared, and instead directs the Commerce Department and the U.S. trade representative to deliver reports on the steps to be taken to achieve reciprocal trading status. Commerce Secretary nominee Howard Lutnick said those studies should be completed by April 1.
“America runs its more than $1 trillion, pernicious trade deficit because the major exporting nations of the world attack our markets with punishing tariffs and even more punishing non-tariff barriers,” Navarro told reporters on Thursday.
It isn’t certain which countries would be the most affected by potential American reciprocal trade actions, but many of the nations with the highest tariff rates on U.S. goods today are countries such as India, Brazil, Vietnam, Argentina and many other Southeast Asian and African nations. Trump signed the order hours before a meeting with Indian Prime Minister Narendra Modi, whose nation was singled out by the White House on Thursday for its tariffs on U.S. exports.
It also wasn’t clear what legal authority Trump would use to impose the tariffs, though the White House indicated several laws would likely be deployed.
The eventual action could hit other, lower-tariff nations as well by taking into account non-trade barriers, such as taxes on American companies, government subsidies for companies in their home countries or regulations that prevent U.S. companies from doing business in foreign countries. Trump’s team will likely target nations with value-added taxes, such as European Union members. The president’s trade advisers have long viewed VATs an export subsidy because companies are given rebates when they export abroad.
Value-added taxes will be viewed as a tariff, Trump said in the Oval Office, adding that the EU has been tough on U.S. companies.
The focus on non-tariff barriers, in addition to duties, means nations such as Japan and members of the European Union could be on the hook for higher tariffs from the U.S. than the duties they impose on American goods. And it also means that nations such as China—which currently has a lower average tariff rate than the U.S., but a number of nontariff barriers—might face further tariffs on imports to the U.S.
Trump’s move on reciprocal trade could mean that his campaign pledge for across-the-board tariffs is less likely. Trump last week said he was leaning more toward reciprocal action than a “flat fee” tariff—a line backed up by those close to him. But the White House signaled Thursday the flat-fee option isn’t off the table.
Trade experts said this week that the reciprocal-trade action would dilute the World Trade Organization concept of “most favored nation” status, a principle of the organization that requires member nations to guarantee equal tariff and regulatory treatment to other members.
How Will Reciprocal Tariffs Work?
Reuters reports Trump outlines reciprocal tariff plan in latest bid to reshape trade on his terms
Howard Lutnick, Trump’s pick for Commerce secretary, said the administration would address each affected country one by one and said studies on the issue would be completed by April 1. That is also the deadline Trump set on his first day in office for Lutnick and other economic advisers to report to him with plans to reduce the chronic trade imbalances that Trump sees as a U.S. subsidy to other countries.
Trump, who campaigned on a pledge to bring down consumer prices, said prices could go up in the short term as a result of the moves. “Tariffs are great,” he said.
A White House official, who spoke to reporters before Trump’s event in the Oval Office, said the administration would study countries with the biggest trade surpluses and highest tariff rates first.
Trump’s tariffs would match the higher duties charged by other countries, he said, and would aim to counteract burdensome regulations, value-added taxes, government subsidies and exchange rate policies that can erect barriers to the flow of U.S. products to foreign markets.
Average Tariff Rates
Study Until April 1
Trump will study the issue until April 1. So tariffs are delayed for a minimum of 46 days.
Q: What countries will be hit?
A: I have already discussed, but I added India and the EU to my report.
Q: What’s Going on in the EU?
A: We have a trade deficit with Ireland of $87 billion. And we have a trade deficit with Germany of $85 billion. That is $172 billion of the $203 billion deficit with the EU.
Q: Ireland $87 billion?
A: Ireland is led by a big surge in pharmaceutical investment with significant sales aimed back at the American market.
The WSJ notes that the Central Bank of Ireland warned that a rise in U.S. tariffs on imports, or a cut in the tax rate on profits, could have a big impact on an economy in which almost one in 10 of those people who work for a business do so for a U.S. firm
US Balance of Trade Select Countries Plus the EU
For all Trump’s huffing and puffing over Canada, the US goods trade deficit is only $64 billion. The entire deficit (and then some) is oil imports at a cheap price, very beneficial to the US.
As for Ireland and Mexico, the US also benefits greatly.
Q: Are their any bright spots?
A: Canada, Mexico, Taiwan, and Ireland are all bright spots if you ask me.
Q: How does Trump see this?
A: Grim
But Trump did not like the market reaction to any of his tariff announcements nor the CPI report. But there is at least one country Trump is proud of.
Balance of Trade Goods Only Australia
Related Posts
On March 2, 2018 I posted Trump Tweets “Trade Wars are Good and Easy to Win”
If trade wars are good and easy to win, Why didn’t Trump win them then? And please note that Biden kept intact all of Trump’s tariffs and even added some.
September 26, 2024: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
If Trump imposed 60 percent tariffs on China, I believe all trade with China would cease.
The US would not collect a cent on those tariffs. That’s the good side actually because would be US consumers who paid the tax.
February 10, 2025: Trump to Impose 25 Percent Tariffs on Steel and Aluminum, Expect Higher Prices
All US consumers of steel and aluminum will pay higher prices, especially the automakers.
February 11, 2025: Trump’s Steel Tariffs Now Will Work as Good as the First Time
Q: How’s that? A: Very poorly.
Q: Is there anything good in this?
A: Yes, I am pleased to report that any US plans to invade Australia are on hold.
More seriously, reciprocal tariffs are a better approach than a global 20 percent blast as Trump repeatedly threatened.
And it’s certainly better than the 25 percent tariffs he threatened on Canada and Mexico.
However, reciprocal tariffs will not fix the deficit with China, Canada, or Mexico. So it will be interesting to see what he concocts.
Have a look at orange juice futures. Tariff talk and postpone, but damage being done. Lots of selective shopping happening also, people doing this without government involvement.
Yep. All over the world, people are looking for non-US trading alternatives wherever possible. Trump doesn’t even have to follow through with his threats. He just has to keep making them.
Not good for Tesla either:
https://thedriven.io/2025/02/05/tesla-sales-are-plunging-around-the-world-is-this-just-a-musk-problem/amp/
It’s amazing how inaccurate the predictions about Trump have been. No one can anticipate what will happen with his decisions and it’s really fun to watch.
Disagree. Trump will do whatever Trump thinks benefit Trump.
It isn’t about predictions. I see very few predictions here.
It’s about Trump saying he will do something and then not doing it.
If you want MY prediction; here it is.
Trump will continue to say he will do things and then not do them.
Like use tariffs to bring back manufacturing and jobs. Pay off the annual deficit. Pay off the debt. Eliminate income taxes. Lead us to the Golden Age.
I hope you’re wrong. I’m cheering for the US with a certain amount of envy. This is an exciting time to be an American because your future has a lot of new potential, even if the possibility of failure looms large.
It doesn’t matter if I am right or wrong. I just want Trump to enact as many tariffs as possible so we can see if they will do everything he says they will. It’s a real world economic experiment.
Mish, you’re behind the curve. Increase your energy.
Everyone wants INSTANT GRATIFICATION …. I am reading such comments here.
Patience is a virtue. Trump is playing it perfectly. He is causing our trading partners to have to THINK AGAIN about their relationships with us.
With that said, I dated around until I was 28 when I met my match and I am still with her. She of course is smarter than I am.
Trump plays it the same. He will be happy no matter what.
In other words: things are gonna work out. Be patient.
Nice theory but Trump did issue tariffs right away and it caused $1 trillion in losses on the futures market, that’s why he backpedaled and now he is doing “reciprocal” tariffs that are on hold until April 1. I suspect on April 1, he’ll find another reason to postpone again or the EU and others will do a token measure and trump will say, “see the tariffs are working.” The cult will cheer while nothing really changes.
You, like me, David & everyone else have no idea WHY for sure Trump backpedaled. You’re simply making conjectures which about all do here, including Mish.
Offshoring our manufacturing took decades. Why wouldn’t it take just as long to bring it back?
We obviously have vulnerabilities as exposed by the supply chain issues that came up during the pandemic. It seems like tariffs would encourage investments in domestic production.
Exactly! Trump & his administration knows very well that there’s a certain level of tariffs that will be inflationary. They’ve got quants just like Doge that can detail this out for them. The tariffs on all items from China all by itself is a very big deal, so there’s not need to rush up to that level whatever it is.
That’s not what he is telling his supporters. He tells them that tariffs will bring back jobs, payoff the deficit and debt, eliminate income taxes, and usher in a golden age. Hard to see how that will happen when he keeps wimping out on them.
No one knows but wankers have lots of opinions.
Everyone is pointing at the trade deficits and seem to say the US is getting abused etc. But to be the reserve currency globally it is needed to have trade deficits. Isn’t that how the US gets the dollars into the hands of the trading partners? To me, saying we shall strive for a fair deal is fine but pointing at the trading deficits is another bigger matter. It’s been a sweet deal for the US, it got abused though.
No, no, no.
What Trump wants is – – –
Head I win, tail you lose.
Reserve currency is mine, trading loss you take.
This is the attitude of leader.
I am tired of Trump’s tariff tease. Come on Donny, show us those big beautiful tariff tatas! Take us to the promised land and the golden age!
It has been my experience that nice tatas under a bra is far more exciting that getting direct access. However, I also got direct access.
Trump is like me: HE IS HOT TO GO UNTIL HE IS NOT HOT TO GO. It confuses and confounds people.
Women went nuts over my reluctance to immediately please. They could NOT understand it. This is Trump’s game…it was mine….I retired at 38 and Trump is rich.
It works.
All Bluster. Because he knows he’ll tank the market if he actually does some dumb across the board tariff action. Same old same old.
Yes, it is purposeful.
There must be a basic logical process other than announcing constant vast moves and then calling them back on deadline day for blurry future possibilities. Markets adjust, but this is so random, with dizzying flurries of big announcements, head-fakes and so little substantive change. We are being dragged into Trump’s personality flukes constantly, into his mind. This boundary is not constructed in a healthy way, IMO. There has never been such a self-absorbed yet extroverted leader in US history. I want to believe there is some coherent push here, for a possible good outcome. The fanboys must have gone through some amazing conditioning to be uncritical about this. I will concede some things deserving of attention have been called out, but these are very patchy and random. Jury is still out. But the guy’s pacing is so jerky.
You kid yourself if you think he has any sort of coherent strategy and he’s just playing 5D chess. Everyone knows he says whatever the last person in the room told him and all his advisors know how to leverage his insecurities when making their case.
India and S. Korea might benefit from Trump’s tariffs at the expense of China and Mexico. Trump, Modi, Yeol and Putin vs Xi. The US will buy more from Russia, S.K. and India if they cut their high tariffs and make peace in Ukraine.
Re:” For all Trump’s huffing and puffing over Canada, the US goods trade deficit is only $64 billion. The entire deficit (and then some) is oil imports at a cheap price, very beneficial to the US.”
THANK YOU Mish! Now can someone get this message through to Trump…I keep yelling it at him when he’s on my tv screen but so far no response!
Please tell me what expensive items US imports.
All are dirt cheap saying below production costs.
Here you go.
https://pangea-network.com/top-10-largest-us-imports-2024/
You’re welcome.
Trade deficits have allowed the US to print money, buy some goods, and often never see the dollars again. They go into a multidue of countries $US reserves. The effect on inflation, therefore, is minimal from the $US creation. That has allowed many things good and bad to happen I suppose. But I think the system has become quite used to this, torqing it back will be an experiment.
Those countries used our dollars to build their infrastructure, RE, industries and military, piling up debt. They need our dollars to stabilize their deflating currencies. If Trump/Vance gov will cut gov debt ==> trust in the US dollar will rise. Foreign and US investors will pour in our industries and the Dow. Lowering taxes on the rich will accelerate this process. China imitated the US investing in foreign frontier countries using their assets and minerals as collateral. Frontier countries are sub prime borrowers. They often fail, piling debt. Xi decided which country will failed and which country to support bc it’s strategically important to China. Trump might counter China flipping them to the US, as Nixon did with Egypt fifty years ago. The Rupee is plunging.
Value-added taxes are tariffs. No doubt about it.
My VAT money was chewed up by currencies exchange and bank’s fees. France got my money for free.
Trump can easily get around his objections to VAT by introducing one in the USA.
Any company that produces in the USA can subtract any VAT paid for costs from the final price: it is much simpler than assessing tariffs on products from every country depending on their VAT rate and would have the same effect as encouraging domestic production; it would also encourage exports for the USA just as it does for any other country using VAT.
You want to introduce a 20% VAT in the US? That is what it would take to counter the EU’s VAT. Myself I am not for a VAT.
Offenders have until 1April to repeal their tariffs. No pull back. Just common sense.
Lets be honest, Ireland is not that much cheaper than US. But has very low corporate taxes. So all those pharma companies (and others as well) are using it as proxy. Real production is most likely done in china or India, then repackaged in Ireland and sold for high cost into America. Whole point is to tax majority of that profit in Ireland when taxes are low and pay as little as possible in US.
Much of this “profit” is just booking international profits through Ireland to take advantage of the low tax rate. The Irish government takes their share and is happy. It does create a strange economy that can be described as Manhattan surrounded by Portugal when it comes to living standards.
It’s not even packaged in Ireland. They’re American based companies that reincorporated in Ireland and their bank accounts are in Us banks under Irish ownership. The only thing in Ireland is a PO Box. The “Irish trade deficit” is just an accounting incongruity.
Apple and Google restore TikTok to app stores
Terrible decision. This is a huge national security problem and the decision by these companies to restore it at the same time shows complicity in violating the PAFACA bill and also coordinated collusion between the App Store duopolies.
Trump needs to enforce PAFACA, not allow China to undermine America. It had strong bipartisan support and SCOTUS upheld it unanimously. It’s the law. Not enforcing it is a slap in the face of both parties and their voters.
Trump “likes” Tik Tok. Case closed.
Trump promised that today was supposed to be the BIG day! Massive reciprocal tariffs on just about everything and everyone. And he wimped out again! Now he is going to “study” reciprocal tariffs for a few months! WTF!
How are we going to wipe out the deficit and the debt and eliminate income taxes without the trillions in tariff revenue that he promised?
Donald John Circumspect Trump.
I’m getting worried, my SPY PUTS aren’t going to pay for themselves until Donny follows through!
All aboard the failboat!
Trump uses “threats” as one of his primary negotiating tools.
I’ve been cautiously optimistic that most of this was bloviating and starting negotiations from a strong point. Thus far, this is looking good … but I had a similar theory that Russia would not actually invade Ukraine … so I’m not exactly batting 1000.
Hey Mike, don’t beat yourself up too much on Ukraine, as many including myself, we’re skeptical that Putin would do it. As it became a destined reality, I got to thinking… Why wouldn’t He?
Ukraine was not part of NATO, so no worries about Intl. BS coming into play. The EU has No Military to speak of, and He was arguably not the aggressor in most cases. At any point, they could “Crush” them, so why, He thought?
A back door way in, if given perhaps? Shenanigans would prevail and allow a NATO Strike on there behalf, or they would be entered into NATO perhaps?
So He thought otherwise, and wisely took what Ukraine gave to Him. Protected the waterways that He already earned and has 100% control over. Sat back and watched it all play out.
I guess we will never know, but it’s not over just yet, as things have yet to be totally settled IMHO.
To us it wasn’t logical that he would invade Ukraine because it would be a disaster for Russia. We were right. It is a disaster for Russia but Putin used a different logic and invaded anyway.
Maybe tariffs are the reason, but it seems more likely according to a couple of economists I read that the actual details in the report are favorable for PCE later this month. According to them, the items that feed PCE were better behaved and should impact PCE favorably.
Wait and see I guess.
That said, given that bonds basically unwound yesterday’s damage, that explanation some holds water, but I didn’t tear into the report deep enough to verify it.
I don’t see anything favorable to PCE. It amusing though because this month rated to be easy.
Last month I commented
A Mostly Good PPI Report With Easy Year-Over-Year Comparisons Coming UP
https://mishtalk.com/economics/a-mostly-good-ppi-report-with-easy-year-over-year-comparisons-coming-up/
PCE overweighs medical vs housing.
But that is a CPI thing.
Medical Care Services is a big PCE component
https://mishtalk.com/economics/cpi-hotter-than-expected-core-cpi-much-hotter-than-expected/
Medical Care Services was flat in the CPI