Navigating Tariffs: The Economic Implications of Trump’s New Trade Policies

Let's get to the big story.

Breakdown.

Well, we are about 9 months out from the 2026 midterms and the Trump administration's economic agenda has hit a constitutional wall with the Supreme Court officially showing out the president's sweeping tariff policies.

The White House is pivoting fast and threatening a unilateral global tariff to fill the void.

Well, under Section 122.

Of the Trade Act of 1974, the president can slap on a levy of up to 15% for 150 days.

And as the president prepares to meet President Xi in Beijing at the end of March, investors are grappling with a double threat, a potential trade war escalation, and also the specter of a divided Congress that could stall fiscal policy through 2020.

Well joining me this morning as we kick off the trading week is Ryan Sweet, managing director and macro forecasting and analysis at Oxford Economics.

Good morning, Ryan.

Thank you so much for joining me.

So let's start out with tariffs.

The Supreme Court did strike down Trump's tariffs, but how feasible is the White House's proposal to 15% from a legal as well as economic standpoint.

Well, from an economic standpoint, it seems like the 15% across the board tariffs will go into place, and that essentially gets the effective tariff rate in the US back up close to where it was pre-Supreme Court decision.

So therefore, the macroeconomic implications are pretty small, but that kind of masks a lot of moving parts underneath.

So there's going to be a lot of changes on the effective tariff rates across countries and by sectors.

So I think that's where you're going to see the most noticeable economic impact.

Uh, because you're going to see the tariff rate on China, India, South Korea, they're all going to come down quite significantly.

From a legal perspective, you know, I'm an economist.

I have, you know, no idea if this is going to hold up in the courts, one way or the other.

And speaking of being an economist, the economic data here in the US on jobs, inflation, and GDP, we all know that it's intertwined with politics, especially since it is a midterm election year.

So if the 2026 midterms results in a divided government, does the president's domestic economic agenda effectively stall, or do you expect a pivot?

Well, I think you'll see a pivot.

I think you'll see President Trump if the midterms play out to yield a divided government, which historically, you know, has been good for financial markets, you know, generally it's seen as preventing, you know, bad economic policies from being implemented, but also in some cases, prevents good economic policies from being implemented under a divided government.

But I do think you'll see the Trump administration pivot towards things.

That he can control with a swipe of a pen, so a lot of these executive orders.

So that's why I do think, you know, tariffs, you know, they're not going away after the Supreme Court decision.

And in fact, after the midterms, he may pivot to lean heavier into tariffs, something that he could adjust on just by a swipe of the pen.

Ryan, we know that policy does play a key part here.

So let's talk about China from both a policy as well as national security perspective.

So is the threat of a 15% global tariff a tactical negotiating chip for the upcoming summit with the president of China, or do you think this is the new baseline for US trade policy?

Well, I think tariffs in general are here to stay.

They're here in perpetuity.

I mean, the, the stated goals of, of tariffs, I mean, some of them, you know, make economic sense, some, you know, are not going to come to economic fruition, like closing the trade gap or restoring a lot of manufacturing to the US.

But this is a bargaining chip.

Uh, when you go to make negotiations with trade deals with, you know, any of our major trading partners, a lot of them want access to the US consumer.

I mean, the US consumer. massive.

So that's the Trump administration's biggest negotiating chip when they go to the table.

These tariffs, I think we're going back to essentially what happened in Trump's first term where he may throw out big tariff threats on China, some of our other trading partners, to kind of help accelerate some of these negotiations and hopefully reach a trade deal.

I do think, you know, with the Supreme Court decision, with negotiations coming up with China, Uncertainty is going to rise from here and policy uncertainty has, you know, weighed heavily on business investment, excluding AI.

It's going to depress the hiring rate, so you're going to start to see this impact of uncertainty around tariffs, you know, continue to bite into the economic data over the next 3 to 6 months.

Yeah and speaking of the American consumer, for viewers out there who are watching right now and they're trying to make heads and or tails of what's going on here, what would you say to them?

How is this going to affect American businesses as well as American consumers.

Well, I think that the American business feels the brunt of this initially because again, the, the uncertainty aspect of it, which is You know, they have more questions than answers.

A lot of these tariffs that the Trump administration announced over the weekend, at least 15% across the board, can last for 150 days, you know, assuming that they stand up legally.

But what happens after that?

And, you know, when businesses have more questions than answers, typically they sit on their hands, so they don't invest in, you know, new structures or new equipment or new software or R&D.

And particularly on the hiring front, they just, you know, kind of freeze, and you'll see that in the hiring data, you know, after Liberation Day last year that businesses just essentially, you know, froze hiring.

So we're going to start to see that impact for the consumer tariffs, just keep in mind, you know, even though the effective tariff rate, you know, is going to go back up to roughly where we are, there's still a little bit of pass through that the American consumer is going to feel from.

Higher tariffs, and they're going to continue to bite in.

So inflation ended last year at 3%, you know, it's still going to be a little sticky in the first half of this year because of tariffs, and then should start to moderate in the second half of the year.

But as economists, we focus on the inflation rate to the consumer, you know, it's the price levels that matter, and unfortunately, these tariffs are going to make sure that a lot of these consumer goods prices, you know, don't come back down.

And Ryan, less than 60 seconds here.

So what does all of this mean when it comes to the central bank of the United States?

I, I think they just sit tight.

I think the Fed's got, you know, there's a lot of moving parts.

I mean, before the Supreme Court ruling, the job market was, you know, finding its footing, you know, it was stabilizing, so that would argue that the Fed sits on its hands and doesn't cut interest rates, you know, roughly in the first half of this year.

They're going to still wait for, you know, inflation to roll over.

So I do think bottom line, you know, we don't think the next rate cut's going to happen until June.

Well, Ryan, thank you so much for joining us as we kick off the final trading week of February.

Appreciate your time and all of your insights.

Thank you.