Tariff relief a positive but high uncertainty remains
In response to the 90-day pause on "reciprocal" tariffs, announced April 9, Managing Director, Washington Policy Analyst Ed Mills provides in-depth analysis of potential paths forward.
To read the full analysis, see the Washington Policy report linked below.
President Donald Trump announced on April 9 that he was pausing the majority of the “reciprocal” tariffs scheduled to go into effect the same day. The 10% baseline global tariff remains in place and tariffs on Chinese goods were raised to 125%, but “reciprocal” tariffs for many US trading partners are paused while negotiations take place.
The development was unbelievable but also entirely predictable, according to Ed Mills, the Raymond James Washington policy analyst.
While welcome from a market perspective – major US stock indices reacted positively to the news – Mills sees the pause as a sign of a few key realities:
- An internal change in administration power dynamics from “Team Tariff” to “Team Econ”
- An implicit recognition that the current strategy was not fully vetted and unsustainable
- Trump’s ability to move the goalposts for acceptable actions
Here, Mills breaks down the latest tariff development:
Treasury Secretary Scott Bessent’s role in announcing the tariff suspension is the strongest signal that “Team Econ” is now in the driver’s seat. The tensions between the two camps in the administration have exacerbated market uncertainty and the lack of a full vetting of the “reciprocal” tariff plan; while the path forward could be more predictable – as long as Team Econ is in charge – the high uncertainty driven by the tariffs will be a market overhang and make it near-impossible for business planning.
Tariff suspension
The 90-day pause on the country-specific tariff rates was attributed by Trump to the “fact that more than 75 countries have called” the administration and that they have not retaliated against the United States. In justifying the 125% tariff on China, Trump wrote, “At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other countries, is no longer sustainable or acceptable.”
In a press conference, Bessent indicated that Canada and Mexico, which had been exempt from the incremental tariffs and instead remained subject to the 25% fentanyl/immigration tariff with USMCA exemptions, would be subject to the 10% tariff. It is unclear at the time of writing whether this replaces the 25% fentanyl/immigration tariff in its entirety. No clarity was provided on the impact to USMCA compliant goods.
Strategy and power shift
While Bessent and other administration officials have sought to paint the pivot as an intentional part of a wider plan, we view the change in tack as likely reflecting a shift in power within the administration. In recent weeks and months, “Team Tariff” – most prominently including White House trade counselor Peter Navarro and Commerce Secretary Howard Lutnick – have been driving the administration’s trade agenda and obtained the final say in tariff decisions, such as the aggressive scope of the “reciprocal” tariffs and use of International Emergency Economic Powers Act to implement it. We expect the power center has now shifted toward “Team Econ” – Bessent and National Economic Council Director Kevin Hassett.
We are once again highlighting our framework for the path ahead:
1. Trump starts cutting deals and tariffs are reduced;
2. Courts or Congress block the tariffs; and/or
3. Trump stays the course, and this is a historic realignment of global trade.
The April 9 announcement is a sign of pressure to obtain Path 1. In general, the extent to which Team Econ is in charge, we will see more of Path 1. The extent to which Team Tariff is in charge, we will see more of Path 3. Unsatisfying for the market is the probability the end result may be a blend of both.
China
The singling out of China – both through the 104% tariff effective as of April 9 and the subsequent raising of the cumulative tariff to 125% – should be viewed as part of an active push by Trump to get China’s attention.
Outlook
A suspension of the “reciprocal” tariffs – which went as high as 50% - for 90 days is a near-term positive. However, the continued existence of a 10% universal tariff, the 125% China tariff, pending additional action on sector-specific tariffs, and the elevated uncertainty generated by the administration’s reversal will ultimately compound existing uncertainty for corporates, especially in the context of Trump’s push to reshore production and manufacturing in the United States. We maintain our view that the 10% global rate is important to the Trump administration for establishing a new revenue source as Congress considers a tax package that could exceed $5 trillion.
Goalpost-moving
Beyond the likely recognition of the limits of the current tariff strategy, the positive reaction to the announcement is yet the latest example of Trump’s ability to move the goalposts. The 10% global tariff will remain in place, per the April 2 announcement – a development that, on its own, sparked significant market concern in the run-up to the election. A 10% levy on all global imports remains a material development, but has obtained a degree of acceptability through the classic Trump playbook:
1. Making a bold announcement.
2. Relative de-escalation to items #2 or #3 on the agenda.
3. Obtain political cover to proceed with the lower-ranking but still-material items as they are perceived as a compromise/moderate outcome.
Read the full
Washington Policy report
All expressions of opinion reflect the judgments of the Raymond James Washington Policy office and are subject to change.
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