Trump’s tariff plans already make waves, even as he reportedly pares reach

The situation: President-elect Donald Trump is reportedly scaling back his plans to implement across-the-board tariffs as high as 20% on all goods imported into the US, per The Washington Post.

• Aides are discussing focusing tariffs on key sectors tied to national security and industries the incoming administration wants to bring back to the US, such as defense materials (steel, iron, aluminum, copper), critical medical supplies (syringes, needles, vials, pharmaceutical materials), and energy production (batteries, rare earth minerals, solar panels).
• It’s unclear if this pivot will affect the additional tariffs that Trump threatened to impose on Mexico, Canada, and China to compel stronger responses to migration and drug trafficking.

The shift likely reflects the incoming administration’s recognition that universal tariffs could spark another inflationary cycle—particularly at the grocery store, where about 60% of fresh fruit and 40% of fresh vegetables in the US are imported.

Ripple effects: While the scaled back approach is less aggressive than the original plan, it would still be a major jolt to the global trade order.

Even as the strategy has yet to be fully fleshed out, it is already producing ripple effects around the world.

• Canadian Prime Minister Justin Trudeau resigned on Monday as the country grapples with how to respond to Trump’s tariff threats. Trudeau had faced mounting pressure to step down after finance minister Chrystia Freeland resigned—in part because she felt Trudeau wasn’t adequately prepared for a trade war with Washington.
• China’s policymakers are revisiting strategies from the previous Trump administration, like allowing the yuan to weaken. A depreciated yuan would make Chinese exports cheaper, mitigating the impact of tariffs.
• Several companies are overhauling their supply chains. Grill maker Traeger, fashion brand Steve Madden, and Academy Sports and Outdoors have shifted sourcing away from China.
• And US retailers are racing to import goods. The volume of imports has been rising, and the nation’s major container ports expect that surge to continue through spring as Costco and other merchants stock up on goods before tariffs take effect, per the National Retail Federation and Hackett Associates’ Global Port Tracker. But the strategy is not without risk: Inventory financing costs are high, and the approach could lead to excess inventory that eats into their margins.

Our take: While the most extreme tariffs may not be implemented, retailers will still face a seismic shift in global trade policy. With the majority of US imports being intermediate goods rather than finished products, universal tariffs would drive up US companies’ costs, making it harder for them to compete.

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