In a recent note, Torsten Sløk, Chief Economist at Apollo Global Management, proposed a strategic scenario involving U.S. tariffs that could provide economic relief while maintaining consistent revenue for taxpayers.
Sløk speculated that maintaining a 30% tariff on China and a 10% tariff on other countries for an extended period could encourage global trade partners to lower non-tariff barriers.
This suggestion comes as the temporary pause on President Donald Trump’s ‘reciprocal tariffs’ is set to expire soon, following a tumultuous period for global markets in April.
While there have been some agreements with the U.K. and a short-term deal with China to reduce initially planned tariffs, substantial deals with other nations remain elusive.
Amid ongoing negotiations with major trading partners, officials in the Trump administration have been optimistic about approaching favorable trade agreements.
Sløk posited that extending the tariff deadlines by one year might allow businesses in the U.S. and overseas to better adapt to a landscape defined by higher tariffs, thus reducing economic uncertainty.
He emphasized that such a move could also lead to a significant increase in annual revenue for U.S. taxpayers, estimated at $400 billion, while simultaneously fostering goodwill among trade partners with lower tariffs.
This potential tariff strategy reflects a shift in Sløk’s perspective, especially considering his earlier warnings regarding the adverse economic impacts of the tariffs. In April, he cautioned that the tariffs could lead to a recession by summer.
The notion of stability extending from the tariff strategy has implications for monetary policy as well.
As the Federal Reserve navigates the complexities introduced by tariffs, a clearer understanding of these tariffs could provide policymakers with insights regarding inflation.
Currently, the Fed is in a wait-and-see approach; some members anticipate stagflation effects, while others see merit in possible rate cuts.
Fed Governor Christopher Waller indicated that economic data might soon justify a rate decrease, whereas San Francisco Fed President Mary Daly suggested a more cautious approach, favoring a potential cut later in the fall.
Investors and economists are beginning to speculate that the economic repercussions of President Trump’s tariffs may not be as severe as initially feared.
Chris Harvey, head of equity strategy at Wells Fargo Securities, expressed optimism, forecasting that tariffs might stabilize within the 10%-12% range.
He also projected a robust rise in the S&P 500, targeting a peak of 7,007, marking him as one of Wall Street’s most bullish analysts.
However, Harvey cautioned that meaningful progress must be made in trade negotiations with significant economies such as India, Japan, and the EU to shift market focus to next year’s prospects rather than immediate tariff implications.
In summary, the discussions surrounding tariffs and potential economic strategies reflect a balance between maintaining revenue and fostering global trade relations amid evolving negotiations.
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