Tariff Man
With the U.S. equity market having rebounded, President Donald Trump instinct on tariffs have seen threats of pharma tariffs and a 100% tariff on non U.S. films. Slow progress is also reported on bilateral deals, despite White House PR spin. However, Trump will see pressure rising from three sources in May-July from a stagflation hit, weaker voter approval and a renewed downturn in the U.S. equity market. This will put pressure on Trump to deliver trade deal by the July deadline; try to get a trade truce with China (here) and curb further tariffs.
Figure 1: U.S. Reciprocal Tariffs and Goods Exported to U.S./GDP (% and USD Blns)
| US universal and reciprocal tariffs | Goods exports to U.S./GDP (2024) | US Imports in Goods | |
| China | 34% | 3% | 439 |
| European Union | 20% | 4% | 606 |
| Japan | 24% | 2% | 148 |
| Vietnam | 46% | 29% | 137 |
| South Korea | 25% | 8% | 132 |
| Taiwan | 32% | 15% | 116 |
| India | 26% | 3% | 87 |
| United Kingdom | 10% | 3% | 68 |
| Singapore | 10% | 8% | 42 |
| Brazil | 10% | 2% | 42 |
| Mexico | 0% | 23% | 334 |
| Canada | 0% | 19% | 412 |
Source: BEA/Continuum Economics
With the U.S. equity market having rebounded, Trump instinct on tariffs have seen threats of pharma tariffs and a 100% tariff on non U.S. films. What will happen next?
· Pharma tariffs. Trump indicated that he will likely announce tariff rates of pharmaceuticals in two weeks showing that he is committed to his tariff agenda to raise tax revenue/shift production back to the U.S. as well as getting better trade deals. A 25% rate has previously been mentioned by Trump, but the hints are that the implementation will be delayed to allow companies to shift production back to the U.S. and avoid a shortage of pharmaceuticals in the U.S. It is also not clear whether the pharmaceutical tariff will be across the board or only certain drugs/ingredients. All of this is classic Trump that wants to go on the offensive with tariffs now that the U.S. equity market has seen a rebound. Additionally, Trump is threatening a 100% tariff on non U.S. films, though details on this remain unclear.
· Slow progress on bilateral deals. The U.S. has put priority on trade deals with India, Japan, S Korea, Taiwan and India, as the U.S. wants to put pressure on China indirectly and directly (via strict reexport criteria of imports from China). The U.S. is reported to be reluctant to reduce reciprocal tariffs below 10% and could be looking to use the July deadline to pressure these five countries into concessions to avoid the full reciprocal tariffs (Figure 1). The five countries are reluctant to concede to all requests from the U.S., as they seek to protect their interests. Hints from Japan and India suggest a May deal is unlikely and the timeline is more June/July.
· Pressure on Trump from economy/voter approval/financial markets. While the U.S. equity market rebound has allowed Trump institute to push the tariff agenda again, Trump will see pressure rising from three sources in May-July. Anecdotal evidence suggests a sharp slowdown in imports due to the penal tariffs with China and this can hurt certain supply chains and production. Consumption and business investment are also likely to slow, though great uncertainty exists on the pace of slowdown. April U.S. CPI will be watched closely to see the pace of tariff feedthrough, amid some hopes that inventories will delay price hikes. However, fast food sales are reported to be soft, which is a worrying sign. Secondly, Trump approval rating are gradually deteriorating and will likely worsen as price rises feedthrough and this will pressure Trump to deliver trade deal by the July deadline; try to get a trade truce with China (here) and curb further tariffs. Finally, we feel that the U.S. equity market will likely move lower as the stagflation hit feeds in and look for 5000-5200 on the S&P500 (here) and 10yr U.S. Treasury yields staying in the 4.0-4.5% central band (here).