While some countries are still negotiating with the U.S., America’s new tariff regime entered into effect at midnight, increasing the effective U.S. tariff level from just under 3% at the beginning of the year to just over 15%.
Up to this point, many companies appear to have used inventories and profit margins as buffers, as well as pressure on suppliers, while waiting to see what would finally emerge. Now, they must make more challenging, longer-term decisions about whether and how much to adjust prices.
Given the differences in tariff sensitivity, pricing power, demand elasticities, and cash reserves, I suspect that outcomes will vary both by sector and by company.
As will the reactions of trading partners. The big questions with implications for the global economy involve Brazil, China, and India. There is also the issue of how far beyond India the U.S. will pursue Russia-related secondary sanctions.
Finally, on the analytical front, I continue to find it helpful to think of this process as displaying multi-stage game theory and unstable aggregation characteristics. In this framework, it will take some time for the global tariff regime as a whole to settle into a new, albeit potentially unstable, equilibrium. It will also take time for economists to confidently specify the precise impacts on global growth and inflation.
#economy #trade #tariffs #markets #india #China #trade
