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Tariffs Are Dovish

Joseph Wang Fed Guy Blog

Date Posted:: November 26, 2024

.@FedGuy12 argues that “the market is likely mispricing the number of Fed cuts by underestimating the downside risk to the economy of future tariffs.” As retaliation reduces export sector employment “the number of cuts priced in could rise quickly.”

The market is likely mispricing the number of Fed cuts by underestimating the downside risk to the economy of future tariffs. President Trump has openly stated his intention to levy large tariffs as a negotiating tool, and would likely move quickly to accomplish his goals before the 2026 midterm elections. Similar to 2018, the tariffs would likely lead to market volatility and poor sentiment. From the Fed’s standpoint, tariffs pose a much greater threat to full employment than price stability. December looks to be a pause, but the moment large tariffs appear the number of cuts priced in could rise quickly.

Takeaways by Macro Roundup^® AI

The market is likely mispricing the number of Fed rate cuts by underestimating the downside economic risk from future tariffs.
Tariffs pose a greater threat to the Fed's full employment mandate than to price stability, and the number of cuts priced in could rise quickly once large tariffs appear.
President Trump has stated his intention to levy large tariffs as a negotiating tool and would likely act before the 2026 midterm elections, with such tariffs likely to bring market volatility and poor sentiment as in 2018.

The Global Economy Is Threatened Again by Trade Imbalances

Greg Ip The Wall Street Journal

Date Posted:: June 12, 2026
Is Database:: Database

Greg Ip warns that while global imbalances are “narrower” than they were pre-crisis, “they are more persistent and more entrenched in national behavior,” pointing to China’s trade surplus and chronic US fiscal deficits.

The IMF calculates that deficits plus surpluses reached 3.7% of global gross domestic product last year after falling steadily from around the global financial crisis. Until the early 2000s, they fluctuated between 1% and 3%. This is worrisome. Current-account deficits played a part in the crises that swept Latin America in the early 1980s, East and Southeast Asia in the late 1990s, the U.S. in 2007-09, and the eurozone from 2009 on. Today’s imbalances look different. While annual deficits are narrower than 15 years ago, they are more persistent and more entrenched in national behaviour. Take the U.S., whose current-account deficit of $1.1 trillion is by far the largest single imbalance. Last year, tariffs did reduce some imports, but because the AI boom sucked in foreign-made tech equipment, the current-account deficit narrowed only slightly. The bigger contributor to the U.S. current-account deficit is its budget deficit, which sustains excessive U.S. spending and inadequate saving. The IMF estimates a budget deficit of 2% of GDP increases the current-account deficit by 0.5% of GDP.

Takeaways by Macro Roundup^® AI

The IMF calculates that global current-account deficits plus surpluses reached 3.7% of global GDP last year after falling steadily from around the global financial crisis; until the early 2000s they fluctuated between 1% and 3%.
The U.S. current-account deficit of $1.1 trillion is by far the largest single imbalance, narrowing only slightly last year as tariffs reduced some imports while the AI boom drew in foreign-made tech equipment.
The IMF estimates that a budget deficit of 2% of GDP increases the current-account deficit by 0.5% of GDP, and the U.S. budget deficit sustains excessive spending and inadequate saving.

Japan, South Korea and Taiwan Are Suffering Industrial Rot

Economist Staff The Economist

Date Posted:: May 28, 2026
Is Database:: Database

The industrial production of Japan, South Korea and Taiwan has risen 15% since 2019 – entirely driven by AI-related demand. Apart from chip-making, IP has shown no trend since 2011. The fall in non-chip output is likely due to Chinese competition.

North-east Asian manufacturing is getting narrower. Chips and other gear related to AI make up over 40% of South Korean exports, more than double their share just two years ago. In Taiwan it is 80% of exports, compared with about half before the pandemic. After accounting for firms not neatly captured as AI-linked in official statistics, like Japan’s Advantest (which makes chip-testing gear) and Taiwan’s Foxconn (which produces data-centre servers, among other electronics), The Economist finds that all 15% of the region’s rise in industrial output since 2019 is thanks to AI. In Japan, South Korea and Taiwan output at factories unrelated to AI has shrunk in recent years.

Takeaways by Macro Roundup^® AI

The Economist finds that all of the 15% rise in north-east Asian industrial output since 2019 is attributable to AI, after counting firms not classified as AI-linked in official statistics, such as Japan's Advantest and Taiwan's Foxconn.
Chips and other AI-related gear account for over 40% of South Korean exports, more than double their share two years earlier, and 80% of Taiwan's exports, compared with about half before the pandemic.
Factory output unrelated to AI has shrunk in recent years in Japan, South Korea and Taiwan, leaving north-east Asian manufacturing narrower.

State of U.S. Tariffs: February 21, 2026

John Iselin Yale University

Date Posted:: February 23, 2026
Is Database:: Database

The new 15% tariffs under Section 122 bring the mean effective tariff rate to 13.7%, down from 16.9% prior to the SCOTUS ruling that the IEEPA tariffs were illegal. Section 122 tariffs will expire in 150 days unless extended by Congress.

The Budget Lab (TBL) estimates the effects of all US tariffs and foreign retaliation implemented through February 20, 2026, including the new 15% Section 122 tariffs and the elimination of IEEPA-based tariffs. Under our baseline case, the Section 122 tariffs expire after 150 days. Before the IEEPA tariffs were struck down, consumers faced an overall average effective tariff rate of 16%, the highest since 1936. Immediately following the IEEPA ruling, the rate fell to 9.1%. After the Section 122 tariffs were imposed, the rate rose to its current level of 13.7%. If those tariffs expire in 150 days, the rate will fall again to 9.1%. Assuming Section 122 tariffs expire in 150 days, the administration’s tariffs will raise about $1.3 trillion over 2026-35, though slower economic growth reduces revenues and brings the net dynamic revenue to $1.1 trillion. (If they are instead made permanent, these figures would be $2.2 trillion and $1.9 trillion.)

Takeaways by Macro Roundup^® AI

The Budget Lab estimates the US average effective tariff rate facing consumers at 13.7%, down from 16% before the IEEPA-based tariffs were struck down — the highest since 1936 — and up from the 9.1% reached immediately after that ruling.
The Budget Lab projects the administration's tariffs will raise about $1.3 trillion over 2026–35 if the new 15% Section 122 tariffs expire after 150 days, with net dynamic revenue of $1.1 trillion after slower economic growth reduces receipts.
Should the Section 122 tariffs be made permanent, The Budget Lab estimates revenue of $2.2 trillion over 2026–35 and $1.9 trillion on a net dynamic basis; if they expire after 150 days, the effective tariff rate falls to 9.1%.

Trump’s Options After the Supreme Court Said His Tariffs Are Illegal

Isabel Gottlieb Bloomberg

Date Posted:: February 20, 2026
Is Database:: Database

Trump has at least five tools he can use to offset the IEEPA tariffs; however, none of them offer the latitude that Trump’s interpretation of IEEPA allowed. Section 338 of Smoot-Hawley, which has never been used, likely has the broadest scope.

President Donald Trump can lean on alternative legislation to try to rebuild his tariff wall, after the US Supreme Court ruled that he can’t use a 1977 emergency law to impose import taxes. [Notably], Section 338 of the Smoot-Hawley Tariff Act of 1930. The Depression-era provision empowers the president to introduce tariffs on imports from nations “whenever he shall find as a fact” that these countries impose unreasonable charges or limitations, or engage in discriminatory behavior against US commerce. There’s no prerequisite for a federal agency to conduct an investigation before the president can apply tariffs. Section 338 has never been used before to impose tariffs. If Trump were to lean on this provision, such an unprecedented move may invite legal challenges. The possibility that Trump could tap Section 338 has alarmed some Democrats in the House of Representatives — five lawmakers introduced a resolution in March 2025 to repeal this section of the 1930 law.

Takeaways by Macro Roundup^® AI

The US Supreme Court ruled that President Donald Trump cannot use a 1977 emergency law to impose import taxes, leaving him to rely on alternative legislation to rebuild his tariff wall.
Section 338 of the Smoot-Hawley Tariff Act of 1930 lets the president impose tariffs whenever he "shall find as a fact" that a country imposes unreasonable charges or limitations or discriminates against US commerce, with no prior federal agency investigation required.
Section 338 has never been used to impose tariffs, and five House Democrats introduced a resolution in March 2025 to repeal the provision.

State of U.S. Tariffs: February 20, 2026

John Iselin Yale University

Date Posted:: February 20, 2026
Is Database:: Database

Without the IEEPA tariffs, the mean effective tariff rate is 9.1%, down from 16.9%. The previous tariff regime was projected to raise ~$2.7T over 2026–35 ($2.3T dynamically). The SCOTUS decision will cut revenue by about 50% to ~$1-1.2T with or without refunds.

The Budget Lab estimates the effects of all US tariffs and foreign retaliation implemented in 2025 after the decision by the Supreme Court of the United States that President Trump exceeded his authority to invoke the 1977 International Emergency Economic Powers Act (IEEPA) to impose reciprocal tariffs. Without IEEPA tariffs, consumers will face an overall average effective tariff rate of 9.1%, which remains the highest since 1946 excluding 2025. (If IEEPA tariffs had been allowed to stay in effect, this figure would have been 16.9%.) All tariffs to date as of February 2026 are projected to raise about $1.2 trillion over 2026-35, though slower economic growth reduces revenues and brings the net dynamic revenue to $1 trillion. (With IEEPA, these figures would be more than twice as large.) The economic implications of the SCOTUS decision are complicated by two major factors. First, in the short-term, firms will be aggressively seeking refunds on tariffs paid in 2025, which has large revenue effects and uncertain distributional effects. Second, the current Administration has stated its intent to replace IEEPA tariffs with tariffs using other authorities, but there remain timing and other questions regarding these steps.

Takeaways by Macro Roundup^® AI

The Budget Lab estimates that without IEEPA tariffs, U.S. consumers face an average effective tariff rate of 9.1%, the highest since 1946 excluding 2025, versus 16.9% had IEEPA tariffs remained in effect.
All U.S. tariffs in place as of February 2026 are projected to raise about $1.2 trillion over 2026–35, falling to $1 trillion on a net dynamic basis as slower economic growth reduces revenues.
The Budget Lab identifies two complications from the Supreme Court decision that President Trump exceeded his IEEPA authority: firms seeking refunds on tariffs paid in 2025, with uncertain distributional effects, and the Administration's stated intent to replace IEEPA tariffs using other authorities.

Industrial Policies, Global Imbalances and Technological Hegemony

Ambrogio Cesa-Bianchi, Andrea Ferrero, Luca Fornar, and Martin Wolf Bank of England

Date Posted:: February 12, 2026
Is Database:: Database

Cesa-Bianchi et al show that countries (primarily in East Asia) that make more intensive use of industrial policies have had more rapid growth in manufacturing employment, total factor productivity, and exports, but not larger trade surpluses.

Figure 5 [see image gallery] reports scatter plots together with correlation coefficients (ρ) and associated t-statistics. The data reveal strong and interesting correlations. The left panel shows that countries with higher use of industrial policies experienced larger rises (or smaller drops) in manufacturing employment shares. The correlation is 0.52 and highly statistically significant. The right panel shows that an analogous result applies to TFP growth, with a similar correlation (0.48) and high statistical significance. As one would expect, East-Asian countries play an important role in driving these correlations. This conforms with the popular view that East-Asian countries have adopted a strategy of outward-oriented growth, characterized by policies that promote tradable sectors. Figure 6 shows the relationship between industrial policies and export growth (left panel) and the current account to GDP ratio (right panel), both averaged over the 2002- 2019 period. The results show a positive relation between industrial policies and exports, though with a smaller coefficient (0.30) and lower statistical significance than for TFP or manufacturing employment shares. Industrial policy does not appear to be related to current account to GDP ratio in the raw cross-country data.

Takeaways by Macro Roundup^® AI

Greater use of industrial policies correlates 0.52 with rises (or smaller drops) in manufacturing employment shares across countries, and 0.48 with total factor productivity growth, both highly statistically significant.
Industrial policy use is positively related to export growth averaged over 2002–2019, with a smaller correlation of 0.30 and lower statistical significance than for TFP growth or manufacturing employment shares.
Industrial policy shows no relationship with the current account to GDP ratio in the raw cross-country data, while East-Asian countries play an important role in driving the manufacturing employment and TFP correlations.

.@FedGuy12 argues that “the market is likely mispricing the number of Fed cuts by underestimating the downside risk to the economy of future tariffs.” As retaliation reduces export sector employment “the number of cuts priced in could rise quickly.”

Do tariffs threaten employment more than prices, prompting more rate cuts?

Takeaways by Macro Roundup® AI

Related Articles:

Greg Ip warns that while global imbalances are “narrower” than they were pre-crisis, “they are more persistent and more entrenched in national behavior,” pointing to China’s trade surplus and chronic US fiscal deficits.

How large have global current-account imbalances grown relative to world output?

Takeaways by Macro Roundup® AI

Related Articles:

The industrial production of Japan, South Korea and Taiwan has risen 15% since 2019 – entirely driven by AI-related demand. Apart from chip-making, IP has shown no trend since 2011. The fall in non-chip output is likely due to Chinese competition.

Is all industrial growth in north-east Asia coming from AI?

Takeaways by Macro Roundup® AI

Related Articles:

The new 15% tariffs under Section 122 bring the mean effective tariff rate to 13.7%, down from 16.9% prior to the SCOTUS ruling that the IEEPA tariffs were illegal. Section 122 tariffs will expire in 150 days unless extended by Congress.

How have court rulings and new tariffs changed effective tariff rates?

Takeaways by Macro Roundup® AI

Related Articles:

Trump has at least five tools he can use to offset the IEEPA tariffs; however, none of them offer the latitude that Trump’s interpretation of IEEPA allowed. Section 338 of Smoot-Hawley, which has never been used, likely has the broadest scope.

What other laws allow tariffs after the emergency law ruling?

Takeaways by Macro Roundup® AI

Related Articles:

Without the IEEPA tariffs, the mean effective tariff rate is 9.1%, down from 16.9%. The previous tariff regime was projected to raise ~$2.7T over 2026–35 ($2.3T dynamically). The SCOTUS decision will cut revenue by about 50% to ~$1-1.2T with or without refunds.

How much do remaining tariffs cost consumers after emergency powers struck down?

Takeaways by Macro Roundup® AI

Related Articles:

Cesa-Bianchi et al show that countries (primarily in East Asia) that make more intensive use of industrial policies have had more rapid growth in manufacturing employment, total factor productivity, and exports, but not larger trade surpluses.

Do industrial policies correlate with manufacturing employment and productivity growth?

Takeaways by Macro Roundup® AI

Related Articles:

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