Daily update

  • US President Trump’s retreat from trade taxes took less than 24 hours. However, taxes on imports from China increased, and the universal 10% import tax stays in place. None of these taxes existed a week ago, and US consumers will have to use income to pay them. Higher taxes on specific products remain, and more are promised.
  • Effective tariffs are still about 20 percentage points higher than at the start of the year. That translates into an increase of about 2-2.5% in US price levels, although China may help US consumers avoid some of the taxes by rerouting its supply. Recession risk in the US is lower than yesterday, but remains high.
  • The big lessons from this: policy remains very (very) erratic; policy competence will be questioned by markets—chaotic confusion about the tariffs on Mexico and Canada suggests the lack of a masterplan; the winning strategy for everyone else is to hang tough and wait for Trump to retreat. Repeated policy uncertainty will hamper investment into the US.
  • We get US March consumer price inflation, but this reflects the before times. Some companies may raise prices in anticipation of taxes, but this is more likely in producer prices (retailers’ profit-led inflation depends on consumers knowing tariffs are in place).
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