Where now for tariffs?

Hello, it's Thursday the 29th of May. A shorter week in the UK, but again, another eventful one. In fact 2025 is really turning into the year of 'never a dull moment' with politics in particular, although other bits and pieces on the side, politics really giving us lots to digest every week and this week is no exception. The main topic of this week of course being tariffs again. At the start of the week, we actually had some reasonably positive news. It looked as though the negotiations between the US and the European Union were finding some areas of collaboration, finding some common ground. And so overall the picture was becoming reasonably positive on balance, at least. Fast forward to Wednesday, where we had the Court of International Trade, a US court, declaring that some, not necessarily all, but some of the tariffs that President Trump has brought in under emergency powers have been brought about in a questionable, unlawful way and suggesting a suspension and potentially an unwinding of some of these tariffs. The reciprocal tariffs and that 10% baseline and the fentanyl related tariffs, the ones that are looking questionable, whereas the more sectorally specific ones, taxes on automotives and steel and on aluminium, they look less likely to be impacted by this judgement at this stage. 

So what do we make of that? Well, the first thing to say is, it's unlikely that will be the end of the matter. The administration in the US has already suggested that they will appeal the decision. Comments along the lines of, 'unelected judges shouldn't be meddling in this sort of emergency power'.  I suppose the converse argument is of course, the much-lauded checks and balances in the US Constitution really coming into play in this instance. It's interesting that it required a lawsuit from a handful of smaller companies that felt aggrieved by these policies that was necessary to get us where we are. But nevertheless, that's exactly why you have the checks and balances in a constitution. Essentially where we are today in terms of policy and everything else is a return to continued uncertainty, just a new type of uncertainty and perhaps an uncertainty that at the margin will be more business friendly and more consumer friendly than the uncertainty we had last week, which was really sort of around the scale of tariffs for us at the moment is whether they apply at all. 

The market's response has been fairly positive to it. It's accepted it in a gracious way, I suppose. But conversely what it does do is bring new uncertainty to the table. So again, when you put yourselves in the shoes of purchasing managers, people planning significant business investment strategy and even consumers planning their long-term spending, they remain in a bit of a difficult position. These businesses planning with the sword of sort of Damocles hanging over them, it doesn't really inspire long-term confidence in terms of business strategic planning. 

And, you know, it's fair to say that we're still not seeing a big impact really from tariffs uncertainties come through in the data. Last week we talked about Purchasing Managers Indices and the fact that they were actually reasonably robust in the States. This week we had consumer confidence printed in the US and actually it's bounced quite substantially from a state of fairly cautious consumer views in April and in fact it's at the highest level it's been in the last six months. So I think it's fair to say that as we went from the extreme tariff positioning in 'Liberation Day' on the 2nd of April into and throughout May, where clearly the direction of travel on these tariffs has generally been reduction rather than increase. It's fair to say that the consumer impression of that has been broadly positive and encouraged by a loosening up of these tariffs. 

Where we go from here remains to be seen. There's all sorts of uncertainties that it causes in the short term of course, not least because if you've paid tariffs already, can you claw them back? There'll be an administrative nightmare any which way from here. And then another interesting wrinkle, another angle is that there are other ways that the government could seek to impose tariffs, so the root of this emergency power is not the only way they can look to bring tariffs to bear, so there could well be more to come from here. 

James [00:05:37] Another thought of course, and again this is really into speculation now, is that it gives the Trump administration a good opportunity to move away from the large thrust of tariffs and blame someone else. You can say well, look, you know, we were fully committed to this, but obviously we've had impediments put in the way, the rug has been pulled and so we'll move away from it. 

[00:06:19] More likely is we'll see further wrangling, whether it be legal or whether it be looking at the operations of how these tariffs come to be applied rather than a wholesale scaling back of tariffs as of today. There's no indication currently that that is likely to happen. 

Elsewhere in the world, we are nearly through May now. We obviously had a difficult April in markets generally, obviously with the US at its epicentre, but it was a trickier month to navigate. May has had a fairly strong outcome in terms of equity markets on the whole, all being equal. We're still a day away from seeing the month out in terms of trading days, but as things stand, you've got the US actually doing best. Over the course of this month with a middle single digit kind of gain in the region. Understandable given perhaps the amount it sold off in April, it really had the wind at its back over the course of May. Elsewhere, markets like Europe and the UK that have done well year-to-date, they had less of a powerful impetus over the course of the month, still very much in positive territory, but the 2s and 3s rather than the solid mid-single digit levels you've seen in the US over the past month. That's it from me. Have a good weekend when you get there and we'll see you next time.