When President Trump announced on April 2 that he was going to implement a broad range of tariffs on imported goods his plans were met with a storm of criticism.
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| Source: https://www.whitehouse.gov/videos/my-fellow-americans-this-is-liberation-day-april-2-2025-president-donald-j-trump-%F0%9F%87%BA%F0%9F%87%B8%F0%9F%A6%85/ |
This is how Trump framed his announcement of the tariffs on that day.
“My fellow Americans, this is Liberation Day. April 2, 2025, will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed, and the day that we began to Make America Wealthy Again.” –President Donald J. Trump
Economists, political pundits and Democrats were quick to criticize Trump.
Tariffs would hurt the U.S. economy.
Our trading partners would not accept tariffs.
Trump was going to start a trade war.
Tariffs would cause inflation.
The revenues that tariffs would raise would be minimal.
All of this would lead to a U,S. stock market meltdown as investors lost confidence in the United States.
It is true that uncertainty about the tariff strategy initially caused a downturn in the stock market.
The S&P 500 lost 12 % of its value in the week after Liberation Day.
However, it now stands over 12% higher than it was on April 1, 2025.
It is almost 28% higher than where it stood at the market lows on April 8.
The betting market odds of a recession in 2025 are currently at 17%. In April, right after the tariff plan was announced, the odds were as high as 70%.
This is one of the lowest betting odds numbers on a recession since Polymarket started taking wagers.
Revenue from tariffs has already resulted in over $150 billion to the federal budget this year.
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| Source: https://www.foxbusiness.com/politics/july-tariff-revenues-break-monthly-record-150-billion-collected-so-far-2025 |
Treasury Secretary Bessent is estimating that tariff revenues will exceed $300 billion for the year.
In 2024, there was about $80 billion in revenue from tariffs most of which were on China that Trump instituted during his first term.
Thus far, tariffs do not appear to have contributed to additional inflation.
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| Source: https://www.cbsnews.com/news/inflation-trump-tariffs/ |
That may change over time but to this point it appears that the tariffs are not being passed through to any significant degree.
This is also what occurred when Trump put the tariffs on China in his first term. The conventional wisdom was that we would see increased prices on Chinese goods but it never materialized.
One reason that you are not likely to see consumer prices rising to reflect the tariff cost on imported goods is because the tariff is levied on the import price.
This the cost before a distributor, wholesaler and a retailer marks up the price and takes their share of the profit.
For example, imported clothing might sell at retail for 3x-5x of what the cost that the tariff is calculated on.
A $50 shirt might have been imported at $10 from China or Vietnam. A 15% tariff would only shave $1.50 off of the shirt's margin. It might be just as easy to eat most of this cost than attempt to pass it through.
When you are dealing with products such as motor vehicles, the importer has to compete with American vehicle manufacturers that are not subject to the tariff.
The import has to be cost competitive with the domestic vehicle or overall sales will suffer.
That is why when you see the analysis of the U.S. tariffs on European automaker they are all cutting their profit forecasts. The tariff is not easily passed on to U.S. consumers. The Europeans are going to have to absorb it to stay competitive in the U.S. market.
Not much that was predicted by the naysayers about Trump's tariff plans has come true.
That is also true regarding the deals he has been able to negotiate thus far.
Let's take a look at the startling success that Trump has had in negotiating new tariff and trade agreements with some of our major trading partners.
United Kingdom (source)
General tariff on UK imports into the United States set at 10%. It was previously 3.4%.
Tariff on U.S. goods into the UK reduced from 5.1% to 1.8%.
UK opens market for U.S. ethanol, beef, animal feed, machinery, etc. that has been restricted in the past.
UK agrees to purchase $10 billion in airplane and parts from the U.S. (Boeing).
Vietnam (source)
20% general tariff on Vietnam imports into the Unite States. It was previously 0%.
40% tariff on goods made in China and transshipped through Vietnam.
0% tariff on U.S. goods into Vietnam. It was previously 5.1%.
The U.S. imported $125 billion in goods from Vietnam in 2024. It exported $12 billion to Vietnam.
Japan (source)
15% reciprocal tariffs.
Japan opens market to U.S. vehicles, rice and more.
Japan to invest $550 billion in the United States
Indonesia (source)
0% tariffs on 99% of U.S. exports.
Ends all non-tariff barriers.
19% tariffs on Indonesian imports (was 3.2%).
Major sales of U.S. energy, agriculture, and Boeing jets.
Indonesia must adopt U.S. labor & IP protections.
Of course, this week saw the announcement of the largest trade agreement ever signed in world history between the United States and the European Union.
The EU trade deal contains these key provisions.
European Union (source)
Establishes a general 15% tariff on imports from the EU compared to an average of 4.8% previously.
The EU will generally reduce tariffs on U.S. goods. For example, U.S. cars imported to Europe will be reduced from 10% to 2.5%.
In addition, the EU has agreed to purchase $750 billion in U.S. energy between now and 2028 and invest an additional $600 billion in the United States over that period.
The EU has also agreed to purchase hundreds of billions of dollars of U.S. manufactured military equipment.
How was Trump able to negotiate such a favorable trade deal for the United States?
He had LEVERAGE.
Bill Mitchell puts it in very simple terms that almost anybody can understand.
I wrote about the tariff issue in early April right after Trump announced his plan and the significant leverage that the United States had in all of this.
Looking at the numbers it is clear that if the United States is going to get to a place with free and fair global trade it needs to look at the tariff situation globally.
It should also be evident in looking at the numbers that the United States has a lot more leverage in a trade war scenario than our trading partners who are benefiting by almost $1 trillion per year.
Trump understands the big picture. He also understands the long game. Trump also understands that to win you have to fight and take calculated risks. Of course, it is easier to do that if you have less to lose than the other guy.
On this issue the United States has a lot less to lose than anyone else.
The Financial Times is no fan of Donald Trump.
However, in the aftermath of the EU trade deal, they published this.
It is also not unusual to see takes like this on social media.
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| Link: https://x.com/LinaSeiche/status/1949662636292899221 |
It should be noted that the trade situation is not as one-sided as it appears to be.
EU countries have long used value-added taxes that act as tariffs to protect their markets and raise revenues.
Those taxes are still in place and they are substantial.
The average VAT rate in Europe is 21% and ranges from a low of 17% in Luxembourg to 27% in Hungary.
The United States has no comparable border tax so there is still an imbalance in the trade tariff/tax situation between the U.S. and EU. It just is not as large as it was before.
Where does this go from here?
The US/EU tariff deal still needs to be approved by the EU Parliament.
This is not assured. There are plenty in Europe who are not happy about this deal, most particularly France.
In the end, my guess that they will not have much choice to accede due to the leverage Trump has.
At the same time, the agreement that Trump has reached with the EU puts even more pressure for China and Canada to come to terms with Trump.
Talks are ongoing with China right now and an extension is possible beyond the current deadline of August 12 that Trump previously established.
However, the clock is ticking on Canada where it does not appear any talks are progressing. Canada could be facing a financial crisis if the U.S. market is effectively cut off to them due to the fact that 22% of the country's GDP is tied to exports to the United States.
At this point, it appears that Trump has been a lot smarter than his critics thought he was.
It also might prove true that tariffs are not anywhere near as terrible as we were told.
Time will tell the true story as it always does.
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