Key Takeaways
- President Donald Trump stopped short of imposing tariffs on day one of his presidency, as he had previously threatened.
- Instead, he set a deadline of Feb. 1 for implementing a 25% tariff on Canada and Mexico.
- Economists said tariff costs will be passed on to consumers, stoking inflation, should Trump go through with them.
- Financial markets are speculating which of Trump’s tariff proposals will be implemented, with Goldman Sachs predicting a high probability of a tariff targeting China.
Trump delayed tariffs on Canada and Mexico on his first day in office, leaving financial markets to wonder if a new Feb. 1 deadline is real.
Trump reignited a fresh round of speculation about his tariff plans Monday evening when he signed a slew of executive orders that notably left out tariffs. During his campaign, he promised to impose 25% tariffs on goods from Canada and Mexico on the first day of his presidency. Instead, Trump ordered a study of trade policy and gave a new deadline for his tariff plans.
“I think we’ll do it February 1,” he told a reporter in the Oval Office.
The delay left forecasters speculating about whether Trump might impose taxes on goods entering the U.S. and, if so, by how much—a hugely significant question for the trajectory of the economy.
What Does the Delay Mean for the Economy?
At various times during the campaign, Trump pledged to tax imports from Canada, Mexico, and China and impose a broad tariff on all foreign imports as high as 20% in the name of encouraging companies to manufacture things in the U.S. instead of overseas. Many economists believe raising tariffs that high would stoke inflation since U.S. consumers would see higher price tags for everyday products.
Several economists working for big banks breathed a sigh of relief at the delay.
“The absence of a tariff announcement on Day 1 of taking office suggested the administration might take a more thoughtful approach to tariffs considering their potential side-effects for the economy,” Sal Gautieri, senior economist at BMO Capital Markets, wrote in a commentary.
One economist said Trump’s rhetoric about trade during inauguration events Monday was more benign than anticipated.
“Trump’s comments on China were notably less hawkish than during the presidential campaign or even his more recent comments since the election,” Alec Phillips, chief U.S. political economist at Goldman Sachs, wrote in a commentary. “And while we viewed a ‘universal tariff’ as a clear risk, his comments suggest that, for now, it is a lower priority than we would have expected.”
However, a delay doesn’t mean tariffs are off the table, given they were a major part of Trump’s economic platform. Goldman Sachs economists still gave a 70% chance of a broad 20% tariff on China, a 20% chance of a 25% tariff on Canada and Mexico, and a 55% chance of tariffs targeting European automobiles being imposed at some point.