US: Trump's 'Liberation day' – What to expect?
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We take a look at tariffs enacted so far, what is expected to come into effect on April 2nd and what could be on the menu next. We provide an overview of the expected direct impact on US GDP without retaliation or sentiment effects.
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While tariffs on individual countries or product groups have usually only limited effect on a macro level, small changes add up.
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Fully enacting the expected tariffs on China, Canada, Mexico, cars & car parts as well as steel & aluminum could lift the effective average tariff rate above 13% and weigh on US GDP by 0.5%.
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The reciprocal measures remain the most difficult to predict. We cannot rule out first EU-specific tariff announcements already next week.
Trump has so far enacted tariff changes that have lifted the trade-weighted average tariff rate on all US imports by around 5.5-6.0%-points. While re-rerouting of trade will decrease the effectiveness of tariffs over time, the current level is already close to the highest since the second world war. This means that the changes enacted so far have already had a much more pronounced impact on the economy than all the changes from Trump’s 1 st term had combined (they lifted the rate by only around 1.5%-points).
Trump has so far enacted a 20%-point increase to tariffs against China. In addition, Trump has set up a 25% tariff on steel and aluminium imports as well partial tariffs against Mexico and Canada. The rate for Canadian energy and potash imports is 10% and 25 % for all other imports. Part of the increase for so called USCMA-compliant goods has been delayed until next week, which means only around 50% and 60% of respective Mexican and Canadian imports have been affected thus far. USCMA compliance requires a product to, for example, have a certain percentage of its value originated from North America.
Next week, markets will be paying close attention to both expanding the existing tariffs as well as the introduction of the first, so-called reciprocal tariffs.
What is set to take effect next week?
The largest expected tariff increases next week come in the form of ending the exemptions for Mexican and Canadian imports, which would levy tariffs on USD428bn worth of new goods. Trump also announced that 25% tariffs on cars and car parts will take effect from April 2nd. Domestic value added to USCMA-compliant car and car part imports would be exempted from the tariffs, but otherwise the measures would target all imports and stack on top of any other measures. Mexico, which accounts for around half of all US car imports, would be affected the worst
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
