Tariff Weekly: Week May 12

This week saw pivotal developments in global trade, with tariff policy playing a central role in shaping economic forecasts, diplomatic engagements, and corporate strategies.

US-China Tariff Truce and Market Reactions

The most significant news was the announcement of a 90-day US-China tariff truce, reducing US tariffs on Chinese goods from 145% to 30% and Chinese tariffs on US goods from 125% to 10%. The agreement, reached in Geneva, spurred a rally in global markets, with the S&P 500 and Nasdaq rising 3.3% and 4.4% respectively. Despite optimism, analysts warned that effective tariff levels remain historically high, and long-term uncertainty persists. Key sectors, including tech and retail, began responding swiftly, with companies accelerating imports and adjusting earnings forecasts accordingly.

Corporate and Sectoral Impacts

Automotive firms like Honda, General Motors, and Ford reported significant impacts, with Honda forecasting a 59% drop in annual operating profit due to US tariffs. EV investments, such as Honda’s $11 billion project in Canada, have been delayed. In retail, Walmart warned of price increases despite tariff reductions, citing persistent margin pressures. The pharmaceutical industry also saw shifts, with companies stockpiling imports ahead of expected tariff impositions.

Geopolitical Responses and New Agreements

The US and UK announced a new trade agreement, eliminating tariffs and expanding market access, particularly in agriculture and tech. China criticized the deal, seeing it as a geopolitical maneuver. Meanwhile, the EU is considering retaliatory tariffs against Ukraine starting in June and continues to negotiate tariff adjustments with the US, temporarily pausing a €21 billion retaliatory package.

Emerging Trade Tensions and Realignments

• Vietnam is under scrutiny for potential transshipment of Chinese goods and is negotiating tariff relief with the US.
• Japan is weighing subsidies for EV infrastructure amid ongoing tariff negotiations.
• India is reviewing a US request to lift restrictions on ethanol imports.
• Canada and the US continue to experience friction, with Canadian officials confirming the persistence of retaliatory tariffs despite US claims.

WTO and Bilateralism Concerns

The WTO raised concerns that recent bilateral agreements, such as the US-UK deal, could undermine multilateral trade norms. These warnings come as more nations seek direct negotiations with the US amid tariff pressures.

Election and Political Influences

In Romania, the presidential election could alter the country’s trade policy. Ultranationalist candidate George Simion’s strong polling has raised concerns about a potential shift away from EU-aligned economic policies.

Looking Ahead

With the US midway through its tariff pause, more announcements are expected from President Trump, including potential unilateral tariff adjustments. Economic reports due in the coming weeks are likely to offer further insight into the broader impact of recent trade decisions.