Trump 2.0 tariff expectations

• No tariffs on Day 1*:
  • Trump will not want to spoil his own parade by hurting markets on his first day.
  • Recent reporting suggests the Trump team is still far from set on a plan.
  • (*EU countries might be the sole exception, given how much he dislikes them)

• No universal tariff:
  • Would be too costly for the US economy.
  • Congressional Republicans aren’t likely to want to legislate such contentious policy. If not implemented through legislation amending the US’s tariff schedule as a whole, then the incentive for ad hoc (i.e. country-by-country, rather than universal) action goes up.
  • More broadly, Trump has different goals and strategies for different countries; applying the same tariff move to all would water that down.

• The EU gets hit first, and suffers most:
  • Likely by end-April.
  • Why first:
    • The many irritants mean a confrontation is overdue.
    • The EU’s peace offerings are likely to be ‘too little, too late’.
  • Why suffer most:
    • Because Trump’s goal is likely (in our view) to be punitive, rather than transactional – i.e. he will be in no rush to reach a deal to lift tariffs.
      • And even if he were, doing so would be far from easy (and therefore not quick).

• China gets a chance, but no new deal:
  • Trump gives China 3-6 months to ‘rectify’ its lack of fulfilment of the Phase 1 trade deal. Even if he doesn’t expect Xi to follow through, there is no downside to saying ‘jump’.
  • China can’t / won’t satisfy Trump’s demands, however – meaning tariffs do come.
    • Chatter about a ‘Plaza Accord 2.0’ or ‘Mar-a-Lago Accord’ overstates Trump’s willingness to ‘waste’ time negotiating with Beijing and his faith in any promises made by it.
  • This need not mean US tariffs are apocalyptic, however: Instead:
    • A symbolic 10-15% increase ‘to show who’s boss’; and
    • Defensively-driven sector-secific tariffs aimed at derisking national-security-related supply chains on a phased-in and backloaded basis (a la here) will likely suffice.

• Mexico gets spared:
  • Trump is using tariff threats to ‘light a fire’ under Sheinbaum. It’s working:
    • Mexico is cracking down on immigration.
    • Mexico is cracking down on drug flows.
    • Mexico is cracking down on China.

• The weak underbellies to our expectations:
  • What we are describing does not amount to a ‘big bang’ announcement that would allow Trump to deliver on his campaign promises.
    • But: who will hold Trump to account? We would argue neither Congress nor the American public.
  • What we are describing would not fulfill Trump’s goal of raising (major) revenue (at least in a visibly-impactful way).
    • But: even his most maximalist campaign promises never stood a chance at rivaling ‘internal’ revenue.​​​​​​