Home > Economics > Trump, tariffs and financial markets
Jan. 31, 2025 by The Trump administration’s announcement on Friday that it would impose steep tariffs on goods from China, Canada and Mexico presents a fundamental contradiction in policy that financial markets cannot ignore forever.Tariffs cannot be both a negotiating tactic and an offset that raises revenues to finance tax cuts.The measures call for a 25% import tax on goods from Canada and Mexico, and a 10% tariff on goods from China, to start on Saturday. The three nations are the United States’ three largest trading partners.The market, which has long anticipated some kind of action on trade yet discounted the prospect, will not be able to have it both ways for long. Tariffs, in the end, are inflationary and put upward pressure on bond yields.Markets reacted to the announcement, with the 10-year Treasury yield rising modestly, about by 7 basis points, and the S&P 500 falling by about 1%.The action is a polite fiction that depends on the willing suspension of disbelief by the investment community that is simply not sustainable.Now, the administration’s announcement will put that policy fiction to the test. The time of having one’s cake and eating it too is rapidly approaching an end.One only need look at the increase in the mention of tariffs in corporate earnings statements using @TheTerminal AI capabilities.Read RSM’s global economic outlook for 2025 in the latest issue of The Real Economy.Related posts
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Filed Under: Economics, USA, x-Featured Tagged With: Joseph Brusuelas, tariffs, U.S. trade policy, USMCA