Retreat repeat

04 Feb 2025 2 min read

Daily update

US President Trump again retreated from imposing aggressive taxes on US consumers. Although taxes on goods from Mexico and Canada are in theory delayed for a month, after three retreats in a row markets are unlikely to take that threat seriously. US consumers would have been visibly affected by these taxes鈥攅ven Republican senators became aware that tariffs are paid by their constituents and not foreigners, and tweeted pleas for exemptions.
Taxing goods from China is still happening, and China has retaliated. The inflation consequences of these taxes are less obvious to US consumers. China helped US consumers avoid earlier taxes by rerouting exports. China sells goods that are bought infrequently (so consumers are less price-aware). China鈥檚 goods tend to fall in price over time, so taxing slows disinflation rather than fueling inflation.
The long-term consequences remain. Foreign countries have less reason to trust that the US will honor trade treaties, reducing the incentive to make concessions. US consumers may have had a fright over trade taxes, changing their behavior. This may be partisan. One news channel barely mentioned the economic fallout on its website, others emphasized it heavily.
US job vacancy data is due. The survey response rate is tiny, making the data an imprecise guide.