Trump Team Considers Gradual Tariff Hikes
Trump’s Economic Team Explores Gradual Tariff Increases as Part of Incoming Administration’s Strategy
A gradual increase in tariffs, potentially implemented month by month, is being considered within Donald Trump’s incoming economic team as a way to bolster negotiating leverage with trading partners while mitigating potential inflationary pressures. This approach involves utilizing executive authorities under the International Emergency Economic Powers Act, a strategy being explored by key figures within the administration, including Scott Bessent, the nominee for Treasury secretary, Kevin Hassett, slated to be director of the National Economic Council, and Stephen Miran, nominated to lead the Council of Economic Advisers. The team’s careful deliberation reflects a cautious approach centered on leveraging trade as a tool for economic advantage.
The proposed tariff schedule envisions an incremental rise, beginning with approximately two percent to five percent increases per month. This phased implementation is designed to avoid a sudden shock to the global economy and allow for adjustments based on reactions from trading partners. The initiative draws on the existing framework of executive powers provided under the International Emergency Economic Powers Act, a tool that could be used to impose tariffs quickly and decisively. However, the plan is still in its early stages and has not yet been formally presented to President-Elect Trump.
Several advisors are contributing to the strategic discussions. Scott Bessent, nominated for Treasury Secretary, is involved in the assessments. Kevin Hassett, set to lead the National Economic Council, is also consulting on the plan’s economic implications. Stephen Miran, nominated to head the Council of Economic Advisers, is providing input on the broader economic strategy surrounding the proposed tariffs. These individuals, operating under a degree of anonymity to ensure candid internal discussions, are navigating a complex set of considerations, attempting to balance the desire for strong trade policies with the potential risks to the U.S. economy.
The potential impact of these tariff hikes has already begun to ripple through global markets. Following reports of the administration’s consideration of a more measured approach, currencies sensitive to economic activity, including the yuan (CNY), the Australian dollar (AUD), and the New Zealand dollar (NZD), experienced strengthening. The offshore yuan (CNY) saw a modest increase in Asian trading on Tuesday, while the Australian dollar (AUD) rose by 0.3 percent. The Canadian dollar (CAD) also benefited from the news, reflecting broader investor sentiment. The shifting dynamics underscore the sensitivity of global financial markets to trade policy developments.
The uncertainty surrounding President-Elect Trump’s trade agenda is contributing to heightened anxiety among investors and businesses. The S&P 500 index dipped below levels reached just before Trump’s election in November 2016, before rebounding slightly later in the trading day, highlighting the market’s reaction to the potential for trade war. Furthermore, concerns about inflationary pressures have led investors to reduce their holdings of U.S. Treasuries, driving up borrowing costs and posing a risk to the broader economy. With only a week remaining before inauguration, economists are grappling with the long-term consequences of Trump’s trade policies.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva has warned that even the threat of tariffs is already contributing to higher long-term borrowing costs globally. “Tariff threats are driving up longer-term borrowing costs around the world,” she stated in Washington on Friday. “That’s happening even as short-term rates have gone down, a very unusual combination.” This highlights the interconnectedness of the global economy and the potential for trade policy to have widespread repercussions.
The potential tariffs have triggered a flurry of diplomatic activity. Canadian Ambassador to the United States, Dennis Gross, issued a stark warning about the potential for “tit-for-tat” retaliation, emphasizing the need for careful consideration of the ramifications of any trade disputes. This underscores the possibility of escalating trade tensions and demands for a measured response from the United States.
Looking ahead, the incoming administration’s trade policies pose significant challenges to the U.S. Federal Reserve. The potential for trade wars to stoke inflation while simultaneously threatening economic growth creates a particularly complex operating environment for the central bank. The uncertainty surrounding Trump’s trade agenda is a key risk factor in the Fed’s forecasting for the economy.
Numerous stakeholders and experts have expressed concerns about the potential impact of Trump’s trade policies. Canadian Ambassador to the United States, Dennis Gross, spoke openly about “tit-for-tat” retaliation if the US were to impose tariffs. Furthermore, industry associations have rallied to fight against potential tariffs on oil, particularly given the impact it may have on Canada’s energy sector. The situation is rapidly developing, and the unfolding trade strategies between the U.S. and its trading partners will continue to exert pressure on global markets and economies.
