As the wait continues for the Supreme Court’s IEEPA decision, rumors have begun circulating that the ruling may not be issued until next month. Meanwhile, tariff threats aimed at eight European countries opposing the Administration’s aspirations to acquire Greenland appear to have eased following discussions between President Trump and NATO leadership. The E.U. had postponed a vote to confirm its trade deal with the United States, but it is expected to be rescheduled.
Details have yet to emerge regarding secondary tariffs President Trump threatened against countries such as China that purchase oil from Iran, but in the meantime reports indicate that China has met its obligations for soybean purchases under its recently negotiated trade deal with the United States. China’s apparent compliance is positive news as keeping that deal on track is critical for many importers, as well to mitigate consumer prices. However, the threatened 25% tariff over oil poses clear risks that need to continue being monitored.
The situation is much more tense with Canada. Last week President Trump and Canadian Prime Minister Mark Carney exchanged criticisms over the Administration’s stance on Greenland as well as its position on trade in general.
On January 16, Canada and China settled on a preliminary trade agreement in which both countries lowered tariffs on certain goods. Later speaking at the World Economic Forum in Davos, Prime Minister Carney warned against economic coercion by the world’s superpowers, a reference interpreted by President Trump to mean the United States. Tensions reached a peak over the weekend with a threat from President Trump to impose 100% tariffs on Canadian imports if Canada enters a trade deal with China. As with prior such threats, no confirming details nor executive order to clarify timing or scope followed. On Sunday Carney clarified his position, stating that Canada respects its obligations under the Canada-U.S.-Mexico trade agreement (known as CUSMA in Canada and the USMCA in the U.S.), and will not pursue a free trade agreement with China without notifying the other two parties.
All of this ups the ante on the fate of the USMCA trade agreement, which is up for renegotiation this year. It has been suggested that President Trump may seek bilateral agreements in lieu of a three-way agreement, but Commerce Secretary Howard Lutnick has acknowledged strong support from U.S. businesses for a renewed agreement. While much of this likely is pre-negotiation posturing, the situation requires close scrutiny.
On Tuesday, President Trump announced on Truth Social that he was raising tariffs on all exports from South Korea from 15 percent back up to 25 percent, blaming the South Korean legislature’s failure so far to implement the trade deal he had reached with Seoul in July. After months of negotiation, in October the Administration had agreed to lower tariffs on South Korean products to 15 percent after Seoul pledged to invest $350 billion in the United States. President Trump did not indicate when the tariff hike would go into effect.
On Tuesday a historic free trade agreement between the EU and India was confirmed after almost two decades of discussion between both parties. Under the agreement, both sides will gradually cut tariffs to zero on most of each other’s imports, with the exception of some key products and sectors. The deal is broadly viewed as a risk mitigation strategy against the United States’ unpredictable trade policies and tariff threats.
While President Trump has yet to officially comment on the landmark deal, Treasury Secretary Bessent has already criticized the EU for moving forward with a trade agreement with India. All eyes remain on the White House for its response.
Congressional discontent with the Administration’s tariff actions continues, with the possibility of upcoming disapproval votes. Such votes are largely symbolic, however, as both the House and Senate bills that would unequivocally restore Congressional authority over tariffs have not gained any new co-sponsors since last April, even among some of the prominent members driving the resolutions such as Republican Senator Rand Paul of Kentucky. In light of the appetites for tariff revenue on both sides of the aisle, the extent of any Congressional bulwark to tariffs remains to be seen.
Meanwhile, the economic data continues to be mixed. November inflation rose to 2.8%, significantly ahead of the Federal Reserve’s 2% target, but on a monthly basis prices were less severe; both overall inflation and core inflation increased just 0.2% in November from October. At that pace, over time inflation would approach the Fed’s target. The government also reported that the U.S. economy grew at a robust 4.4% annual rate during the July through September quarter, the fastest growth in two years.
The Federal Reserve Bank of Atlanta reported a decrease in firms’ inflation expectations for the year ahead to 2%, down from 2.2% in December, marking the lowest level reading since the pandemic. As consumers remain skeptical about the health of the economy, it remains to be seen whether recent reported statistics translate to real-life experience.
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