Tariffs driving you crazy? A few more simulations to ease your mind

Summary

U.S. tariff policy is rapidly changing. And in an attempt to proactively assess the economic impact of tariffs, we modeled and ran two new simulations based on different tariff assumptions. The first scenario is similar to the assumptions currently underlying our global economic outlook, albeit with minor tweaks. The second scenario represents a more contentious tariff posture from the United States as well as full retaliation from major U.S. trading partners. In short, the more aggressive the tariff policy becomes the closer the global economy—and U.S. economy—get to recession, and the further central banks are from reaching their respective inflation targets. For now, this exercise is purely indicative, and we will formally adjust our tariff assumptions and forecasts in our monthly update next week.

Assessing the impact of tariffs: An indicative exercise (for now)

Tariff headlines and changes to U.S. trade policy have been top of mind for businesses and investors since U.S. elections in November and more so post inauguration. This week, President Trump reinforced the administration's focus on trade policy by delivering on prior threats and imposing a 25% tariff on Canada's exports to the U.S.—ex-energy imports, which will be subject to a 10% tariff—as well as a 25% levy on all exports from Mexico. For now, President Trump has also offered a 30-day tariff delay on auto imports from both Canada and Mexico. As far as retaliation, Canada announced matching tariffs. Mexico, at the current juncture, has opted for a more cautious response, signaling that retaliation options are being considered and would be presented this weekend. China was also subject to new tariffs this week as the Trump administration doubled the tariff rate imposed on all Chinese exports to the United States. China is now subject to a 20% tariff, a significant escalation in restrictive trade policy between the U.S. and China relative to President Trump's first term. As far as retaliation, China has opted for a measured response, only targeting select goods from industries deemed sensitive to the United States. Over the course of this week—particularly in his recent speech to Congress—President Trump confirmed tariffs would continue to be the primary tool utilized to rebalance trade deficits and seek concessions on issues pertaining to immigration, border security and the flow of fentanyl into America. Tariff talk is a lot to digest. Rapid-fire headlines regarding tariff rate hikes on individual countries, reciprocal tariffs on U.S. trading partners, carve outs, exemptions and possible roll-backs further cloud the picture. To help, we created the Wells Fargo Tariff Tracker to offer clarity on where U.S. tariff policy stands. We plan on updating the Tariff Tracker frequently, and most importantly, when changes to tariff policy have been threatened or formally announced, not necessarily in conjunction with headlines.

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