U.S. President Donald Trump has implemented a 90-day suspension of his reciprocal tariff plans for all countries except China. However, as stated by a White House official, the 10% baseline tariffs that took effect last weekend will continue for all countries, excluding China.
U.S. Treasury Secretary Scott Bessent claimed that Trump was always planning to pull back his sweeping tariff plans for dozens of countries just days after announcing them.
Current Situation:
China: U.S. tariffs on China have now reached 125% in total. Additionally, Trump will eliminate the de minimis exemption for inexpensive products from China and Hong Kong starting May 2.
European Union: Although the EU has announced retaliatory measures, these tariffs have not yet been enacted. Consequently, the 20% reciprocal tariffs on the EU are on hold, and EU goods entering the U.S. will be subject to the 10% baseline rate.
Mexico and Canada: Tariffs on these neighboring countries remain unchanged. Goods that comply with the United States-Mexico-Canada Agreement (USMCA) can cross the border without tariffs, while non-compliant imports will incur a 25% tariff, except for energy and potash, which are subject to a 10% tariff. Canada and Mexico were exempted from the 10% baseline tariff as of April 5 and will continue to have this exemption.
Metal and Auto Sectors: Previous tariffs on imports of steel and aluminum (25%) and automobiles (also 25%) remain unaffected by Trump's policy update.
Recession is still waiting
While the 90-day pause may have pleased investors, it is unlikely to prevent a recession, said Joe Brusuelas, chief economist of RSM US, in a statement to CNN.
"My sense here is that the (US) economy is still likely to fall into recession, given the level of simultaneous shocks that it's absorbed," Brusuelas said. "All this does is postpone temporarily what will likely be a series of punitive import taxes put on US trade allies."
Following Wednesday's announcement, economists at Goldman Sachs reverted to their earlier prediction of a 45% chance of a recession occurring within the next year. Before the announcement, they had considered a recession the "base case," indicating it was very likely to happen.
According to Financial Times (FT), Andy Brenner, head of international fixed income at NatAlliance Securities, described Trump's decision to suspend as a "capitulation to markets."
"He has saved face by keeping tariffs on China."
Bob Michele, chief investment officer and head of global fixed income, currency and commodities at JPMorgan Asset Management, said there had not been a "huge shift" in the bond market.
"There is still so much uncertainty out there. The bond market is focused on inflation going well above the [Federal Reserve's] target and the Fed is telling us they're not cutting rates," he added.
Citigroup also said in a note to clients, "pausing reciprocal tariffs excluding China does not mean the US economy has avoided a slowdown in growth and rise in inflation".
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