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The Macro Brief – State of US tariffs
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With the US’ 10% global tariff set to expire this July, Shanella Rajanayagam, Trade Economist, looks at which US tariffs are currently in effect - and what could be coming down the line.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/SqFtWMH
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Transcript
Introduction to US Tariffs and Global Impact
00:00:09
Speaker
This is the Macrobrief from HSBC Global Investment Research, our weekly look at the issues driving financial markets across the world. I'm P.S. Butler in London. Now, it's been just over a year since the Trump administration introduced wide-ranging tariffs on goods entering the United States, a move that caused shockwaves across global trade.
00:00:28
Speaker
Since then, we've had tariff removals and revisions, as well as refunds. So on today's podcast, we're taking stock of where we are now. which US tariffs are currently in effect, and what could be coming down the line.
US Supreme Court Ruling on Tariffs
00:00:40
Speaker
To do that, I'm joined in the studio by trade economist Shanela Rajanagam. Shanela, great to have you back on the podcast. Thanks, Piers. I guess, given my intro, let's start with a quick recap of what has happened since the infamous Liberation Day.
00:00:53
Speaker
So a lot has happened since Liberation Day and if you remember those reciprocal duties that were implemented on Liberation Day were done so under the International Emergency Economic Powers Act or IEPA. So in February this year the US s Supreme Court actually struck down the use of IEPA to impose duties and so the Trump administration had to quickly pivot and it basically replaced those duties, some of which were as high as 50%, with a flat rate 10%
Current Tariff Rates and Refunds
00:01:24
Speaker
tariff on imports from all countries. But this temporary tariff is due to expire on the 24th of July, and so now is working to establish a more durable tariff regime in its place. And in order to do so, it has launched two tranches of Section 301 investigations. at the So what do these investigations, what do they do?
00:01:44
Speaker
So the Section 301 investigations are essentially into unfair trading practices. So the first tranche is into 60 economies over their forced labour compliance policies, and the second tranche is into 16 economies are over excess capacity.
00:02:01
Speaker
We're going to come back to the forced labor ones because there's been some news literally today about this. Just to be clear, so what is currently the effective tariff rate on imported goods to the U.S. and what percentage of overall imports are being impacted?
00:02:14
Speaker
So currently the US's effective tariff rate is around 11% and that's actually the highest it's been since the early 1940s and not considering the spike last year following Liberation Day.
Compliance Increase Under USMCA
00:02:27
Speaker
And according to our calculations, more than 40% of US imports currently attract duties.
00:02:34
Speaker
Now, to come back to what you said earlier, the Supreme Court struck down the initial wave of tariffs. So what's happening in terms of the potential reimbursements? And do you think that's going to filter through into the ultimate consumer?
00:02:48
Speaker
Yeah, that's a good question. So the tariff refunds have now started to flow. According to the Trump administration, they had collected about $166 billion dollars worth of duties under AIPA, and they've started to process about $85 billion dollars worth in refunds, so about half. Whether or not it starts to flow to consumers really is the question at the moment, because only companies and customs brokers can actually apply for the refunds. So you have some companies like FedEx saying that they will pass it on to the consumer, but it really does remain to be seen.
00:03:23
Speaker
Interestingly, also in terms of the recap, there have been some unintended consequences. I'm thinking in particular of trade covered by the USMCA trade agreement. and That's a trade agreement between the US, Mexico and Canada, right?
00:03:36
Speaker
That's right. So even though the USMCA partners of Canada and Mexico have had additional tariffs imposed on their flows, the bulk of their trade still goes in duty free into the US. And actually a flip side of these higher tariffs is that compliance under the USMCA has increased.
Sectorial Tariffs on Metals and Autos
00:03:56
Speaker
ah So, you know, in 2024, about 44% of US imports from these partners were USMCA compliant. But that increased to about 86% in the first three months of this year.
00:04:09
Speaker
So in reality, a lot of people weren't bothering to be compliant, but with the higher tariffs, they've all said, right, we better do the paperwork. Exactly. You know, an FTA is only as good as if a business actually uses it. And it seems as though these higher tariffs are now enough to make businesses actually claim the preferences.
00:04:26
Speaker
Also, we shouldn't forget that the Supreme Court's ruling didn't impact sectoral tariffs and and that there have been some significant divergences in how they have impacted different industries. Can can you maybe illustrate that?
00:04:38
Speaker
Yes, so that's right. So all the Section 232 sectorial tariffs still remain in place. And crucially, the global flat rate 10% tariff does not apply ah to the same goods that are targeted by the sectorial tariffs. But the sectorial tariffs can be quite high. So, for example, ah tariffs of between 15% to 50% on certain metals, steel, aluminium, copper, 25% tariffs on autos and autos parts, 25% tariffs on certain computer chips, and 100% tariffs on pharmaceuticals that are due to kick in in a month or so. and when we look at some of the trade data, you can see some shifts. ah So for example, US import volumes of steel and aluminium have declined, but there has been a bit more of a mixed pattern for autos trade. So for example, imports of vehicles under tariffs have fallen since the new duties kicked in ah but auto's parts have actually risen. and that could be because a lot of those parts are actually coming in USMCA duty free.
Section 301 Investigations
00:05:44
Speaker
Unintended consequences, as we've just said. um So let's come back to what's next in terms of tariff legislation, and in particular today's announcements. Yes, so ah today or very late Tuesday in the US, the USTR released the findings of its first tranche of Section 301 investigations, and it is proposing new additional tariffs of between 10 and 12 and a half percent. So 10% on imports from 15 partners, including the UK, EU, Canada and Mexico, and 12.5% on imports from the other 45 economies that were under investigation. Now crucially these tariffs are not effective immediately. There's a public consultation process and the USTR will be holding a consultation in early July.
00:06:37
Speaker
ah but on top of all this we're still waiting on the findings and the proposals for the second tranche of Section 301 investigations. ah So it could very well be the case that some of these economies are hit twice ah by new tariffs. There could also potentially be more sectoral tariffs to come. There are a number of sectoral investigations underway, including on PPE, critical minerals, robotics. ah Plus, ah the USTR has also recently recommended increasing tariffs on Brazil. So imposing a further 25% tariff has opened another probe into Vietnam's trade practices as well. So this is all to say there could definitely be a lot more tariff uncertainty to come, even though i don't think we'll necessarily see as big a shock as Liberation Day again. ah There's certainly waves of tariff actions that could increase the uncertainty for businesses.
US-Iran Conflict and Trade Flows
00:07:35
Speaker
more of a sort of multi-pronged strategies, but it's fair to say that tariffs are here to stay. Exactly. We're going to take a break and we'll be back in a minute.
00:07:45
Speaker
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00:08:01
Speaker
Now back to today's episode.
00:08:05
Speaker
So irrespective of what we've been discussing in terms of tariff legislation, trade flows have been upended by the US-Iran conflict and what we would refer to as normalization hinges on a peace deal.
00:08:18
Speaker
However, even if one is announced tomorrow, which it might be, How long will normalization take? And also, is there likely to be a permanent rerouting of some trade flows given the perception of residual risk in the Strait of Hormuz? I was struck by your colleague, Paris Jane's recent note, who is our global transport analyst, that container shipping rates have been soaring and are now 93% higher than they are pre-conflict.
00:08:41
Speaker
That's right. So, you know, what is normal for trade these days is very different to what it used to be. And it seems to a certain extent, businesses have got used to this period of volatility. And as we've written about recently, trade is still finding a way. So, ah for example, ah you know, crude oil export volumes from Saudi Arabia lia increasingly being diverted from its eastern Gulf countries.
00:09:04
Speaker
port to its Red Sea port. so there is some of that trade diversion happening. um Of course, you know, shipping rates, air cargo rates are skyrocketing at the moment. But in terms of when exactly we might see that normalisation, it really depends on when a US-Iran peace deal is reached and crucially one that actually facilitates free movement through the Strait of Hormuz. The risk, of course, being that we could be in this type of ah conflict period or volatile period ah for some months yet. So even if the strait reopens, ah could it potentially close again? And that's a risk that you know businesses, shippers ah have to be mindful of.
00:09:46
Speaker
You mentioned Vietnam as part of the US administration's investigations. Is that sort of referring to this issue of diversion versus reconfiguration?
00:09:56
Speaker
Is Vietnam and Taiwan particularly the focus of
Trade Diversion Effects
00:09:59
Speaker
that? Yeah, so this is something we've been looking at for a number of years now, in fact, since the US-China trade war initially started. And the story really is more one around trade diversion rather than a full reconfiguration of supply chains. So it's very clear China is losing import market share in the US. It's now the US's third largest source of imports behind Mexico and Canada. What was it before then? It was number one
00:10:27
Speaker
But also at the same time, China has been increasing its export share to some of these third markets like Mexico, like Vietnam. ah So from that, we could determine that some of the trade is being rerouted via these countries to the US. And it's more pronounced when we look at things like ah electronics. So, for example, at the product level, ah the U.S.'s import share of machinery and electronics from China and the EU fell over the past year. But India and Vietnam have risen in importance. And obviously, they are very much docked into Chinese supply chains as well.
00:11:05
Speaker
What's happening to other trade deals? Did the summit between President Trump and Xi deliver any major breakthroughs? So there was no major breakthrough on tariffs, but the US and China did agree some other trade deliverables, including to establish a board of trade and a board of investment. ah China also agreed to some additional purchase commitments of around $17 billion dollars worth of US s agricultural goods each year yeah until 2028. It also agreed to tackle some non-tariff barriers, so resume registration of eligible US beef suppliers and resume poultry imports from some US states. ah In terms of the Board of Trade, the USTR actually just this week launched a public consultation on that with the idea that this will facilitate tariff reductions on both sides in around $30 billion dollars worth of goods.
00:12:00
Speaker
So maybe to finish on, because there is a lot going on what's happening to trade forecasts? I mean, I was very struck that 2025, despite all the tariff uncertainty, still saw growth in world trade, which seems to sort of really exemplify the resilience of trade, really. ah What's the outlook now?
00:12:18
Speaker
Yeah, absolutely. So global trade actually ended 2025 on quite a strong footing.
Global Trade Growth Despite Uncertainties
00:12:23
Speaker
And now we have to consider the impact of the Middle East conflict. So it's very, very difficult to forecast at the moment. I will say the World Trade Organization is currently expecting goods trade growth of 1.9% this year.
00:12:38
Speaker
But if we do have sustained energy prices that are quite high, that could shave about 0.5 percentage points off. And on the services side as well, it's expecting global export growth of 4.8%, but that could come in just above 4%, depending on the impact of the conflict on international
Podcast Wrap-Up and Listener Engagement
00:12:59
Speaker
travel. Well, we'll have to see. That's all we have time for today. But, Janela, thank you very much for updating us. Thanks, Piers.
00:13:11
Speaker
Shinela Rajanagam there on the latest U.S. tariff situation. So that's it from us today. a reminder that we also release an Asia-focused podcast each week. Please check that out if you haven't already. It's called Under the Banyan Tree, and you can find it wherever you get your podcasts.
00:13:27
Speaker
And finally, if you'd like to get in touch, please contact us at askresearch at hspc.com. This episode of The Macrobrief was hosted by me, Piers Butler, and produced by Tom Barton.
00:13:38
Speaker
Please like and subscribe wherever you get your podcasts. Thanks very much for listening, and we'll be back next week.