Back & Bigger, Tariffs

MONETARY

• Within the Fed’s most recent Beige Book release, survey information noted a continuation of positive economic growth, as well as a number of other developments¹
  • Consumer spending was seen as still positive, however slightly down from prior observations likely do to unseasonably cold weather in many regions of the U.S. during the period
    • (Federal Reserve) “Consumer spending was lower on balance, with reports of solid demand for essential goods mixed with increased price sensitivity for discretionary items, particularly among lower-income shoppers. Unusual weather conditions in some regions over recent weeks weakened demand for leisure and hospitality services.”¹
  • The Fed also noted that respondents across a wide range of industries expressed uncertainty over the evolving tariff situation¹
    • (Federal Reserve) “Contacts in manufacturing, ranging from petrochemical products to office equipment, expressed concerns over the potential impact of looming trade policy changes”¹
    • (Federal Reserve) “Some contacts in the (construction) sector also expressed nervousness around the impact of potential tariffs on the price of lumber and other materials.”¹
  • The report also noted that the labor market continues to operate in much better balance than in previous years, and that wage growth continues to be positive
    • (Federal Reserve) “Labor availability improved for many sectors and Districts, though there were occasional reports of a tight labor market in targeted sectors or occupations. Contacts in multiple Districts said rising uncertainty over immigration and other matters was influencing current and future labor demand.”
    • (Federal Reserve) “Wages grew at a modest-to-moderate pace, which was slightly slower than the previous report, with several Districts noting that wage pressures were easing.”
  • Regarding inflation, the report noted that there were quite a few different forces currently at play, causing price disruptions¹
    • (Federal Reserve) “Input price pressures were generally greater than sales price pressures, particularly in manufacturing and construction. Many Districts noted that higher prices for eggs and other food ingredients were impacting food processors and restaurants. Reports of substantial increases in insurance and freight transportation costs were also widespread. Firms in multiple Districts noted difficulty passing input costs on to customers.”¹
    • (Federal Reserve) “contacts in most Districts expected potential tariffs on inputs would lead them to raise prices, with isolated reports of firms raising prices preemptively.”¹

 

GEOPOLITICS

• After a one month initial pause on the implementation of additional tariffs on Canada, Mexico, and China, the Trump Administration moves forward with implementing the following changes to its international trade policies²
  • A 25% tariff rate on all goods imported from Mexico to the United States²
  • A 25% tariff rate on all goods imported from Canada to the United States with some exceptions²
    • Trump Administration delays the implementation of the 25% tariff rate on automobiles by an additional month to allow for U.S. companies to shift production back into the U.S.²
    • Additionally, energy or energy resources imported from Canada will receive a special tariff rate of only 10% – rather than the 25% rate²
      • These include items such as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals²
  • An additional 10% (on top of the existing 10%) tariff rate on all Chinese imports²
    • This additional tariff increase brings the total tariff rate on imported Chinese goods to 20%²
• Retaliatory tariffs from countries effected by the recent tariff implementations include²
  • From China:
    • 15% tariffs on chicken, wheat, corn, and cotton imports from the U.S.²
    • 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products²
    • Adding 15 American companies to its Export Control List²
    • Halting lumber imports from the U.S.²
  • From Canada:
    • 20% tariff rate on $30B worth of various U.S. Goods, ranging from agriculture, dairy, clothes, various foods, cosmetics, and more²
  • From Mexico:
    • No formal response as of the time of this writing²
• Separately, President Trump announced that worldwide reciprocal tariffs will go into effect on April 2, whereby the United States will match all tariff rates on goods imposed on U.S. goods by other countries – dollar-for-dollar^2,3
  • Additionally, President Trump stated that the United States will also reciprocate non-financial barriers to trade imposed on the U.S. by other countries^2,3

 

FISCAL

• The House of Representatives passed a party-line budget resolution (H.Con.Res.14) that sets a long‐term fiscal blueprint for FY2025 through FY2034⁴
  • The resolution does not directly fund the government for the current fiscal year (with continuing resolutions still needed to prevent a shutdown) but establishes numerical targets and reconciliation instructions that will later guide the drafting of actual spending and tax legislation⁴
  • The resolution contains both large drops in Tax Revenue, as well as Government Spending⁴
    • The resolution instructs the Ways and Means Committee to develop tax legislation that would reduce federal revenues by an estimated $4.5 trillion over the next 10 years⁴
      • Primarily in the form of extending tax cuts from the Tax Cuts and Jobs Act⁴
    • It directs committees—including notably the Energy and Commerce Committee—to propose spending cuts totaling about $2 trillion over the next 10yrs⁴
  • Exact details of actual appropriation proposals are not yet known and will be subject to a significant degree of change and uncertainty during the ensuing political process⁴

[See Below for Disclosures & Annotations]

 

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. The Federal Reserve. “The Beige Book”. March 5 2025
2. White & Case. “US Tariffs on Canada and Mexico Enter into Effect; Tariff on China Rises from 10% to 20%”. March 4, 2025.
3. The Wall Street Journal. “Trump Previews Reciprocal Tariff Action Set for April 2”. March 5, 2025
4. NPR. “After GOP passes budget resolution, Congress to-do list only gets tougher from here”. February 26, 2025.f