Commenting, John Wyn-Evans, Head of Market Analysis at Rathbones, one of the UK’s leading wealth and asset management group, says: “President Trump has announced a new round of tariffs, effective today. They are being imposed under Section 301 of the Trade Act 1974 which governs trade that "burdens or restricts American trade" and apply to 60 countries, covering over 99% of US goods imports.
"There are two rates, 10% and 12.5%, depending on the US’s judgement as to whether sufficient efforts have been made to adopt and enforce legislation to ban forced labour imports. They effectively replace the prevailing temporary emergency 10% tariffs (which were due to expire today), which themselves replaced the "Liberation Day" tariffs that had been ruled illegal by the Supreme Court earlier this year.
“Special tariff regimes for cars, steel and aluminium are unaffected and so there is no "double stacking" of tariffs, at least. Conveniently, the duties include exemptions for various goods that the US does not produce, including certain grades of oil, gas and fertiliser. The existing trade arrangements for Canada and Mexico remain in place.
“The UK and EU are subject to the 10% rate. To be clear, the tariffs do not represent an accusation that the UK and EU, for example, are employing forced labour, more that they and others are taking insufficient measures to ensure that their own imports are not from countries that do. Again, there are no specific claims about who does, although one cannot help but feel that China is the ultimate target.
“A move such as this was widely expected because it was clear that Trump would find any pretext possible to extend the tariffs. His true motives remain his belief that the US trade deficit is a function of unfair competition (rather than excess domestic consumption and a lack of certain key resources) and a desire to increase the government's revenue to offset the burgeoning fiscal deficit. The Yale Budget Lab calculates that the average statutory tariff rate stood at 12.1%. Had the expiring tariffs not been replaced, they would have fallen to 9.8% at the end of this year. Now the rate will be 12.8%. The burden will, once again, mostly fall on US consumers and importers, although there will be minimal impact on year-on-year inflation.
“Market reaction has therefore been limited, although it's difficult to disaggregate the effects from the re-escalation of hostilities in the Middle East and the ongoing debate about the profitability and duration of AI-related investment. Trade policy and tariffs continue to be a convenient stick which the President will continue to use to express his ire, however impractical."
