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Donald Trump reportedly wanted his first term as president to be a television show where every day was an episode where he “vanquished his enemies.” If that’s how he views his second term, then April 2 is must-see TV.
Wednesday is when Trump says he’ll implement sweeping import tariffs that could impact every aspect of the global economy. There’s edge-of-your-seat suspense in this episode, as not even members of his administration know what exactly the tariffs will be.
Although no one knows what to expect from the mercurial president, here’s where things stand heading into the latest installment of the Trump show.
Which tariffs are currently in effect?
Trump wasted no time acting on his campaign promise to place tariffs on countries he views as “ripping off” the U.S.
On Feb. 1, he slapped a 10% tariff on China. He doubled it to 20% at the end of February. This is an extension of the tariff tit-for-tat that Trump and Chinese President Xi Jingping engaged in during Trump’s first term. Many of the tariffs remained in place during the Biden administration.
Mexico and Canada — long a target for Trump — are currently subject to a 25% tariff on goods that don’t comply with the United States-Mexico-Canada Agreement (USMCA).
He’s also placed a 25% tariff on all imports of steel and aluminum.
Which countries and goods could be next?
Literally all of them. Trump’s plan to implement global reciprocal tariffs would place a tariff on every country and every good in the world, depending on how the tariffs are implemented.
But Trump’s threats change and evolve constantly. He’s threatened the EU with a 25% tariff, in addition to a number of goods like lumber, semiconductors, pharmaceuticals, copper and food.
Some of the threats target specific policies. He’s threatened China, Spain, India and any country that imports Venezuelan oil — which includes the U.S. — with a 25% tariff. Other countries that have been specifically targeted either directly or indirectly include Vietnam, Colombia, Russia and El Salvador, among many others.
He also regularly threatens to raise the rate of tariffs already in place. He suggested raising the tariff on steel to 50%, and Mexico and Canada are subject to ongoing threats.
A 25% tariff on Mexican and Canadian goods that comply with the USMCA will resume on April 2. Reciprocal tariffs and the 25% tariff on Venezuelan oil importers will begin as well. And a 25% tariff on all auto imports is scheduled for Thursday, April 3.
What are the implications for housing?
The most direct impact is on homebuilders since many of the tariffs will apply to construction materials. The 25% tariff on steel and aluminum imports hits builders hard, and the one threatened on Canadian lumber would hurt too. The U.S. imports 31% of its lumber products, and 73% of that total comes from Canada.
The 20% tariff on China impacts builders as they rely heavily on Chinese imports of appliances, plumbing fixtures and glass.
While homebuilders are likely to eat some of the costs of the tariffs, much of it will be passed on to homebuyers in the form of higher prices.
But the tariffs will have an indirect impact as well through a one-time price shock. This will squeeze household budgets and make it even harder for prospective homebuyers to afford a monthly mortgage payment.
Tariffs are also inherently inflationary, and the Federal Reserve has signaled a reluctance to lower the federal funds rate out of fear that the tariffs will reignite inflation. This could shelve the Fed’s plan to lower rates later this year and keep mortgage rates higher for longer.
How do reciprocal tariffs work?
To put it in Trump’s colloquial terms — “they charge us, we charge them.”
The idea is that any country that has a tariff on an American good will be slapped with the same tariff on their goods. For example, if Italy had a 25% tariff on American fidget spinners, the U.S. would match that with a 25% tariff on Italian fidget spinners.
But this plan is a logistical nightmare that would be nearly impossible to implement, so the administration is reportedly working on ways to simplify the process.
One proposal was for the U.S. to create three tiers that would have different tariff rates, and each country would be placed in one of those tiers depending on their perceived level of unfair trade practices. That plan was scrapped. Another plan was to apply the tariffs only to the 15 countries that have the largest trade deficits with the U.S.
Some recent reports suggest that Trump may implement a universal tariff rate on all imports, with the number being 20%.
How will tariffs impact the economy?
Take a look at your 401(k)’s recent performance and you’ll get the basic idea. Economists largely view tariffs as bad policy — and markets agree.
Since Feb. 19, the S&P 500 has dropped by about 9%, and it’s been highly responsive to Trump’s day-to-day statements and actions in regard to tariffs. When he threatens a high tariff, the market tanks. When he dials it back, it rises a bit.
Prices are already moving due to the threats and uncertainty alone. The National Association of Home Builders — which asked the Trump administration for a tariff exemption on building materials — has received reports of builders already pricing in higher costs in preparation for tariffs.
But the economy won’t be affected by Trump’s tariffs alone. Countries across the world — friends and foes alike — are discussing ways to respond to Trump’s levies, which would damage American industries that export their products. And the residual effects of a global trade war are entirely unpredictable.
What does Trump want in this?
Part of the problem with the situation is that Trump hasn’t clearly articulated an answer to this question. We can only read tea leaves from various statements and actions he’s taken since inauguration.
The tariffs on Mexico and Canada have taken effect twice, only to be paused for one month shortly after. The first pause came in February and it was in exchange for minor concessions related to immigration enforcement and stopping the flow of fentanyl into the U.S.
But these issues don’t apply to every country in the world, and they don’t even apply to Canada. Less than 1% of the fentanyl seized in the U.S. comes from Canada, and there’s no migrant crisis at the northern border.
At various times, Trump has said that tariffs will make America “rich.” The added revenue could be used to reduce the federal deficit or offset lost revenue from the planned extension of his first-term tax cuts.
He’s also said that he wants to use tariffs as leverage to get other countries to lower levies placed on the U.S. But raising revenue and using tariffs as leverage to lower levies are contradictory goals — the amount of revenue raised by tariffs would drop if Trump uses them as leverage to lower tariff rates.
Another goal Trump has floated is to bring back American manufacturing by limiting imports from other countries. Leaving aside that economists believe this is a pipe dream, blanket tariffs on all imports will simply raise prices on certain goods that the U.S. doesn’t produce.
