With focus on the G7 Summit and the Iran peace deal last week, the tariff front remained quieter. While there was no action on the pending Section 301 investigation on excess capacity expected to enhance the 301 tariffs intended to replace the IEEPA duties, the U.S. Trade Representative (USTR) did announce a new Section 301 investigation into Germany’s pharmaceutical pricing practices, with comments due in September.
The potential legal durability of the Section 301 tariff scheme was signaled last week when the Supreme Court declined without comment a review of a challenge to the China 301 tariffs from President Trump’s first term. This decision leaves those tariffs standing with all appeals exhausted, and it is expected that other similar cases filed in the Court of International Trade (CIT) will be dismissed.
In France, after the G7 Summit, President Trump suggested that the U.S.-Mexico-Canada Agreement (USMCA) could “expire immediately” as the July 1 renewal deadline approaches. Officials from both countries seemed to downplay President Trump’s remarks: Canadian Ambassador Mark Wiseman asserted “it’s all going to be OK,” and Homeland Security Secretary Markwayne Mulling called for mending the “fracturing” United States/Canada relationship. As with previous comments by President Trump, the extent to which they turn out to be rhetoric remains to be seen.
Both the rapid decline in fuel prices on news of the Iran deal and May's economic data suggest that the Administration will find support for its tariff policy. Retail sales data released last Wednesday indicated not only that sales held up, but that they increased broadly. Expansion occurred in 11 of the top 13 sales categories. Sales excluding gasoline rose 0.7 percent, and auto sales, which are particularly sensitive to gas prices, rose at the fastest pace in nearly a year. Even parts of the retail economy (such as furniture sales) that have been weak have strengthened in May.
Tariff critics will point out that these are nominal figures and do not reflect price increases. Sales at gas stations are up sharply, not because people are consuming more gasoline, but because gas prices have increased. However, according to the Department of Labor’s consumer price index, core goods prices—excluding food and energy—actually fell in May, indicating that much of May’s increase in retail sales was real. Also notable is that the Federal Reserve Bank of Atlanta’s survey of business inflation expectations indicated that businesses expect unit costs to rise by 2.3 percent over the next year, down from 2.4 percent in April.
In the face of conflicting economic data, the stock market and political polling so far have been the only metrics prompting the Administration to change its tariff policy. Whether any resolution of the Iran conflict will affect those factors over the next three months remains to be seen.
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