To recap, the biggest news hitting markets since Friday is the Supreme Court shooting down Trump’s reciprocal tariffs from April last year. The 6-3 decision now sees those tariffs, enacted under the IEEPA, are deemed unconstitutional/illegal. As such, the US administration has to halt collecting duties related to the tariffs imposed through that.
So, what’s happening now?
Trump has quickly moved on to pursue other avenues and the next step is having to enact blanket 15% tariffs for 150 days through Section 122 of the Trade Act of 1974.
For some context, Section 122 is supposedly meant for having to deal with “fundamental international payments problems”. It was created after former US president Nixon imposed a 10% global import surcharge in 1971. The idea behind Section 122 was more that it was supposed to act a safety net during the era of fixed exchange rates. But with global economies moving on from that to a floating exchange rate policy, this law has essentially become a relic of sorts.
As for whether or not this will stand for much longer than 150 days, it’s not likely. And I dived more into that in a separate discourse here.
But for the meantime, let’s take a look at who are the biggest winners and losers from the change to 15% blanket tariffs.
Quintessentially, the biggest winners are those that drew the ire of Trump the most in the past year or so. And the two big names that stand out are China and India.
Chinese exports to the US had been facing levies of around 34% to 50% since last year, so a drop to 15% is a much welcome reset in that sense. As for India, tariffs have risen to near 25% in the past month as both countries have failed to come close to settling on a deal. So, India is now paying up to 10% less levies on goods than they were a month ago.
So, what can Trump do now about China and India on the trade front?
Section 301 seems to be the next step but this is one that might take months on end to resolve, as it involves investigations, public hearings and evidence-gathering.
But essentially, Trump will still push for heavy duties on China especially on tech, semiconductors, and maritime especially. Against India, it will be fighting back through digital taxes, pharmaceutical products, jewelry, as well as agricultural staples. So, look out for those targeted sectors to be hit as the US administration has to be more “surgical” in their approach next.
So, who are the biggest losers when it comes to the latest change to 15% blanket tariffs?
Ironically, it is those countries that have played ball with the US the most in the past year. And the biggest name of the lot is the UK.
Before this latest change, they have successfully negotiated reciprocal tariffs of just 10% with the US. And in all likelihood, the latest tariffs shift here displaces the previous deal and so the UK will have to pay 15% levies instead. The British Chambers of Commerce estimates that the change will cost UK exporters roughly $4 billion.
Besides that, the other two big losers of this change are Japan and South Korea. While technically both countries are seeing no change to their tariffs rate of 15%, they both had committed to hundreds of billions in US investments just to keep the general tariffs rate around that. Meanwhile, other countries are now handed a “free” 15% tariffs rate by default without needing to do so. Ouch.
