Key Takeaways:
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• Proposed monthly tariff increases of 2-5% using emergency economic powers
• Key advisers include Treasury nominee Bessent, NEC director Hassett, and CEA nominee Miran
• Plan aims to balance negotiating leverage with inflation concerns
• Markets already showing reaction with currency movements and Treasury selloffs
What Happened?
President-elect Trump’s economic team is developing a strategic approach to implementing tariffs through gradual monthly increases. The proposal, still in early stages, would utilize the International Emergency Economic Powers Act to implement incremental tariff hikes of 2-5% per month. This represents a more measured approach compared to Trump’s campaign rhetoric of immediate 10-20% universal tariffs and up to 60% on Chinese imports. Key architects of the plan include incoming Treasury Secretary Scott Bessent, National Economic Council Director Kevin Hassett, and Council of Economic Advisers nominee Stephen Miran.
Why It Matters?
This potential policy shift has significant implications for global trade and financial markets. The graduated approach suggests a more strategic implementation of Trump’s trade agenda, potentially minimizing immediate economic shocks while maintaining negotiating leverage. Markets are already responding, with notable movements in Asian currencies and US Treasuries. The approach could help manage inflation risks while still pursuing aggressive trade policy objectives. The International Monetary Fund has noted that even the threat of tariffs is driving up global borrowing costs, creating an unusual divergence between short-term and long-term rates.
What’s Next?
The market should prepare for potential implementation following Trump’s inauguration, with several key areas to monitor:
- Final policy details and implementation timeline
- International response, particularly from China and major trading partners
- Impact on global supply chains and inflation
- Federal Reserve’s monetary policy response
- Market adjustments in currencies, bonds, and equities
Watch for formal policy announcements post-inauguration and potential modifications based on market reactions and international negotiations. The Federal Reserve’s response to this policy shift will be crucial, as it balances inflation concerns with growth objectives.
