INSIGHTS

On April 07, 2025

AAM Viewpoints — Tariffs: A Means or The End?

In short, we believe the Trump administration's new tariffs on individual trade partners may allow for negotiation, but the blanket tariffs could be permanent. As we closely monitor retaliations and political rhetoric, we see fixed income as a compelling potential shield against uncertainty.

More specifically, the administration announced key new tariff initiatives as part of its “Liberation Day” announcement. According to the Executive Order, all countries will face a 10% tariff effective April 5, and tariffs on 57 countries will kick in on April 9, calibrated to half the U.S. bilateral trade deficit divided by U.S. imports from that country, adding to the administration’s total tariff announcements so far (figure 1).

The measures were more severe than markets anticipated. Much of the market had expected the new measures to take the global effective tariff rate to 10% to 15%, but the latest estimates are 20%-25%, the highest since the early 1900s¹.

Figure 1: Trump administration announced further tariffs on trade partners

Source: White House, Department of Commerce, US ITC, Goldman Sachs Investment Research, April 2025.

Administration may see tariffs as both the means and the end

During his press conference, President Trump described tariffs as a way to force other countries to lower their trade barriers (a “means”), but also as a revenue generator (the “end”).

We can envision the 10% universal tariff being a permanent fixture, primarily aimed at raising revenue for tax cuts and thus an “end” in itself.

We can also envision any country-specific tariff rates being negotiable, (a “means” to a different end). Despite initial expectations that the policies would take effect immediately, their slight delayed implementation may imply some room for dealmaking. This could take many forms — such as lower tariffs on U.S. imports, eliminating non-tariff barriers on U.S. goods or commitments to purchase U.S. goods.

Notably, Canada and Mexico were spared any further action, and in fact the temporary exemptions negotiated last month of USMCA-compliant goods were extended. To us, this suggests a potential path forward for USMCA (United States-Mexico-Canada Agreement).

Potential retaliations and political discord

We expect some economies will respond with counter tariffs and other measures such as export restrictions, restrictions on trade in services or access to foreign direct investment or public procurement. This would risk further escalation from the U.S.

Some may take a less confrontational approach, providing fiscal support for their exporter sectors. Others may be content to take no action with the aim of securing a Free Trade Agreement with the U.S.

In addition, signs of discord within the Republican Party may limit further action. Symbolically, four Republican Senators joined Democrats to pass a resolution aiming to end the emergency declaration that allowed President Trump to unilaterally impose tariffs on Canada. The bill is very unlikely to advance further in the GOP-controlled House of Representatives, but it could get President Trump’s attention.

We expect fixed income could offer a shield against uncertainty

U.S. and global growth and inflation projections are being re-evaluated in light of the US administration’s policies, considering the likely drag on growth and increase on pricing pressures. In this environment, we continue to see value in fixed income assets, which could be an effective way to shield against uncertainty in the current environment.

Looking ahead, in a tariff-heavy environment, we believe sector allocation and security selection will be critical. A global approach to fixed income may also offer opportunities to enhance alpha generation.

1. Barclays, Goldman Sachs Investment Research, Insight, April 2025

CRN: 2025-0403-12454 R