The Trump administration has issued a warning to trading partners that tariff rates could swiftly return to elevated levels if trade agreements are not finalised before a 90-day negotiating window closes.
Moody’s marks down the US economy
Meanwhile, the US economy took a reputational hit last week when Moody’s Ratings downgraded the country’s long-standing AAA credit rating to Aa1, citing rising debt and political gridlock.
The downgrade follows similar moves by Fitch and S&P in 2023 and 2011, respectively. The decision could push up borrowing costs across the economy by increasing US Treasury yields.
Tariff pause – for how long?
Treasury Secretary Scott Bessent confirmed that the tariff pause, introduced after Donald Trump’s April 2 announcement of sweeping “reciprocal” tariffs, was conditional on reaching good-faith agreements with 18 priority countries.
Without those deals, Bessent said tariffs would be reinstated at prior levels.
The current pause has temporarily lowered US tariff rates to a baseline of 10%, down from April’s peak of up to 145% on certain Chinese goods.
In return, China dropped its import duties on American products from 125% to 10%.
The de-escalation between the two countries was welcomed by financial markets, with the S&P 500 posting five consecutive days of gains last week and rising 5.3% overall.
While the administration says some progress has been made, particularly in talks with China, the US administration is believed to be considering a more regional approach for other trade partners.
Bessent flagged the likelihood of setting broad regional tariff levels for areas such as Central America and Africa.
‘Negotiation’ tactic
The White House has at various times framed the shifting tariffs simply as a negotiation tactic, which has drawn the ire of the markets and businesses that must face increasing costs and operational uncertainty every time Trump makes new utterances on tariffs.
The ongoing volatility has led some companies to raise consumer prices, while others have delayed investment plans.
Retailers, particularly those reliant on Chinese manufacturing, remain under constant pressure – even while tariffs are ‘low’, because no-one can really say for how long this will remain the case.
Bessent himself acknowledged that some tariffs may be passed on to consumers, but admitted that large retailers such as Walmart would be expected by the regime to absorb, or ‘eat’, part of the cost – a pretty startling concession.
With the tariff pause nearing its end, attention now turns to whether agreements will be finalised – or if the US president might once again escalate his self-started trade war.