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USMCA Tariffs Deferred
On Monday, it was announced that U.S. tariffs on Canada and Mexico were deferred. The tariffs that were announced on February 1 were part of a negotiation strategy designed to yield Canadian and Mexican policy changes to aid U.S. national security and economic security goals. In short, this strategy worked.
As such, we expect that as long as Canada and Mexico are making a concerted effort and meaningful progress toward supporting U.S. national security and economic security goals, tariff increases are likely to be postponed and may not ever materialize.
Future Tariff Accouncements to Drive Concessions
President Trump has promised to announce across-the-board U.S. tariffs next week. It remains to be seen if those tariffs are also being planned with an intent to encourage geoeconomic cooperation to clamp down on Chinese goods dumping and tariff evasion through the use of transshipments.
It may seem odd to think of President Trump as the Elliot Ness of international trade, seeking to stop Chinese tax evasion (i.e., tariff evasion), but here we are.
In addition to stopping Chinese tariff evasion, President Trump has voiced support for setting U.S. tariffs at reciprocal rates, which aligns with the Reciprocal Trade Act introduced in the House in January.
See the announcement here - https://rileymoore.house.gov/media/press-releases/congressman-moore-introduces-us-reciprocal-trade-act
We believe the end goal of these U.S. tariff announcements is not to generate U.S. tax revenue but to encourage U.S. trade partners to make concessions, which could include tariff, geopolitical, or geoeconomic concessions.
For this reason, we believe President Trump may postpone or otherwise defer tariffs for some countries even without reciprocal tariff reductions so long as other geopolitical or geoeconomic concessions that support U.S. national security or economic security aims can be gained.
Future Tariff Impacts Depend on Implementation
The size of the impact that U.S. tariffs (and resulting retaliatory tariffs) have on U.S. inflation and growth will depend greatly on the timing and duration of tariff implementation.
Any negative impacts on U.S. growth and inflation from U.S. tariffs and any reciprocal tariffs will hinge directly on when, if, and for how long they are implemented.
For now, the most significant economic and business risks stem from planning difficulty and business uncertainty against a backdrop of trade wars and geopolitical risks.
Read our USMCA trade report: https://conta.cc/3EgSDRx
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