As President-elect Donald Trump prepares to take office, his economic team is looking at a strategy to slowly increase tariffs over time. This approach could give the U.S. more negotiating power while helping to avoid a sudden inflation spike.
The idea is to increase tariffs gradually—by about 2% to 5% every month. This would be done under executive powers, relying on a law known as the International Emergency Economic Powers Act. While this plan is still in its early stages, it hasn’t been fully presented to Trump just yet.
Some of the key players involved in this conversation include Scott Bessent, Trump’s nominee for Treasury Secretary, Kevin Hassett, the future director of the National Economic Council, and Stephen Miran, who’s in line to head the Council of Economic Advisers. However, no one from the team has publicly commented on the matter yet.
The plan seems to be about starting slow—gradually building up tariffs so they don’t shock the economy all at once. The goal? To increase pressure on countries like China while preventing inflation from rising too fast.
The Impact on Global Markets: A Little Shift, But Still Uncertainty
After news of the potential plan broke, China’s yuan and other currencies tied to its economy, like the Australian and New Zealand dollars, strengthened. The yuan rose 0.1% in Asia trading, and the Aussie dollar went up 0.3%. This may signal that traders expect China’s economy to remain stable, at least for now, despite the looming tariff talks.
China has been actively trying to support its currency, as it remains close to a record low offshore. But with Trump’s promise of higher tariffs on Chinese exports, investors are still expecting the yuan to weaken over time if the trade war escalates.
Trump’s Past Talks on Tariffs: What Does It Mean for the Future?
During his 2024 campaign, Trump talked about imposing hefty tariffs—between 10% and 20% on all imports and a massive 60% or more on products coming from China. Now that he’s won, the world is watching to see how he’ll follow through on his tariff threats. While Trump has dismissed some reports suggesting a more measured approach, the uncertainty has left markets on edge.
The S&P 500 index saw a drop earlier this week, falling below its level from just before the election. This reflects the concerns that investors have about the potential economic fallout of new tariffs. The fear is that inflation could rise due to these new trade measures, creating a tough environment for both stocks and the broader economy.
How Will This Affect the Economy?
With just days to go before Inauguration Day, no one can say for sure how Trump’s approach to trade will unfold. Economists are bracing for potential impacts, with the Federal Reserve especially concerned. The new tariffs could lead to slower growth, or even trigger inflation if other countries retaliate.
Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), pointed out that the uncertainty surrounding Trump’s trade policies is already driving up long-term borrowing costs worldwide. This is happening at the same time that short-term interest rates have been dropping—a rare combination that adds to the global economic pressure.
In short, while the gradual tariff plan might seem like a slow burn, its impact could be felt far beyond the U.S. shores, creating ripples in global markets and adding uncertainty to the economic forecast. Stay tuned—the next few months could change everything.