President Trump Blinks for Now, But Tariffs Remain High
On 9 April, President Donald Trump announced a 90-day pause on the higher “add-on” reciprocal tariffs on 50-plus countries that had been announced the previous week, precipitating a historic equity market rally and showing that there was seemingly a limit to how far he would go to move forward with his trade agenda.
While the worst-case scenario has likely been avoided, meaningful tariffs remain, which are likely to have implications for U.S. and global growth as well as inflation. They include:
- A 10% universal tariff on all countries, effective April 5. Treasury Secretary Scott Bessent indicated 10% would likely be the floor for tariffs going forward, and National Economic Council Director Kevin Hassett suggested that it would be a very “high bar” for countries to secure a deal below that 10% level.
- A 145% tariff on Chinese goods. Trump has indicated there could be a deal with China that could lower tariffs from the punitive 145% rate, but we expect tariffs on China to remain elevated, regardless.
- A 25% tariff on non-United States–Mexico–Canada Agreement (USMCA)-compliant goods from Mexico and Canada, effective March 4. Compliant goods from Canada and Mexico are estimated at about 50% of all goods (and have a 0% tariff under USMCA). Thus, we expect more Mexican and Canadian exporters will seek compliance for their non-USMCA compliant goods, which are now subject to tariffs.
- A 25% tariff on goods imported from any country that imports Venezuelan oil, effective 2 April.
- A 25% tariff on aluminum and steel, effective 11 March.
- A 25% tariff on autos (effective 3 April) and auto parts. Similar product tariffs are expected shortly on pharmaceuticals and semiconductors.
These tariffs could represent an increase in the average effective tariff rate of up to about 23% on U.S. imports, certainly not as significant as the approximately 30%-plus the market had expected, but much higher than the average 3% effective tariff rate on imports pre-Trump 2.0. (Note, the effective tariff rate could decline if imports from China collapse, but that would likely entail significant economic friction in and of itself.)
Tariffs and economic growth
The 10% universal tariff rate represents a possible headwind to U.S. growth of up to 1 percentage point and a similar possible impact on inflation (depending on foreign exchange adjustments, among other factors). See my colleague Tiffany Wilding’s piece, “The U.S. Economy’s Trajectory Amid Higher Tariffs.”
The market had been looking for a signal that Trump would blink from the most draconian actions taken last week, and this was certainly it – and it came as a surprise to many in the administration. Indeed, Trump’s Trade Representative, Jamieson Greer, was testifying before the House Committee on Ways and Means and seemingly did not know the announcement was coming. Trump said that the temporary relief had to do in part with the bond market, “where people were getting a little queasy,” and that people on the Hill were getting “yippy” and “afraid.” At the same time, he still reinforced how committed he is to rebalancing trade and how tariffs are overall a very effective tool.
The long-term effects of tariff policies
Over the next 90 days, we should expect to see the White House announce several deals with various countries (India, Australia, Argentina, the U.K., and possibly Japan seem like the low-hanging fruit). While we could see still higher add-on tariffs (in addition to the 10% tariff roll-on after 90 days for countries that do not secure deals), our expectation is that any add-on tariffs would be significantly less draconian than those announced last week. Nonetheless, we should not underestimate Trump’s ideological commitment to this issue, so while the worst may have been avoided, trade policy uncertainty – and significantly higher tariffs and its attendant growth effects – should be priced-in going forward.
Our baseline scenario for the ultimate destination had been a 10% universal tariff on all countries, higher tariffs on China (though lower than 145%), and specific product tariffs (autos, steel, pharma, etc.). But we thought it would take longer, and include more pain, to get there (see my 7 April piece, “Tariff Turbulence: What to Watch, Including Possible Constraints.“ While we could see additional, targeted tariffs increase in 90 days, we think Trump and his advisors have touched the hot stove and backed away from the most draconian approach, although tariff threats and uncertainty on countries with the biggest trade deficits are likely to continue (the EU and Vietnam still seem more vulnerable).
With that said, tariff levels, even after Wednesday’s “blink” could have significant implications for growth and inflation. Yet irrespective of those effects, we think there is a stickiness behind the 10% baseline tariff, sector tariffs, and elevated China tariffs for the longer-term (i.e., they are not likely to be rolled-off).
Featured Participants
Disclosures
All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
For professional use only
Per the information available to us you fulfill the requirements to be classified as professional clients as defined in the MiFiD II Directive 2014/65/EU Annex II Handbook. Please inform us if otherwise. The services and products described in this communication are only available to professional clients as defined in the MiFiD II Directive 2014/65/EU Annex II Handbook and its implementation of local rules and as defined in the Financial Conduct Authority's Handbook. This communication is not a public offer and individual investors should not rely on this document. Opinion and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness.
This material contains the opinions of the manager and such opinions are subject to change without notice.. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.
CMR2025-0410-4401243