Thoughts

August 08, 2025 | 15:18

Tariff Threats: Now a Reality

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Remember how the world breathed a sigh of relief on Inauguration Day, because President Trump did not mention tariffs at all in his speech? That relief did not last: while signing Executive Orders in the Oval Office, a reporter asked about tariffs. “We are thinking in terms of 25% on Mexico and Canada… I think February 1^st… I think we’ll do it February 1^st.”

And so it began. After the back and forth, those tariff threats have now become reality. Since January, businesses worldwide have found it difficult to plan ahead. A deer in the headlights? Central bankers, outside the U.S., have debated what the pricing impact would be and concluded that tariffs may be disinflationary (less demand, slower growth). Thus, despite some early-year efforts to get ahead of the tariffs, policymakers continued on their path to lower rates. Since the start of 2025, Banxico has slashed rates 225 bps; the ECB and the RBNZ have cut 100 bps; the BoE and the Riksbank have reduced their policy rates 75 bps; the BoC, RBA and the SNB have lowered their key rates by 50 bps; and, the Norges Bank trimmed its rate 25 bps. The RBA may join the BoE’s group next week, if it lowers the cash rate 25 bps, as we expect.

Two stand out, and there is plenty of debate about what they should or should not be doing: the Fed (no moves this year, although that’s likely changing in September), and the BoJ (+25 bps).

Global stock markets and major currencies have withstood all the uncertainty and turmoil. Perhaps it is on their belief that these further negotiations will eventually see tariffs lowered. Tell that to Switzerland’s PM Karin Keller-Sutter, who rushed to Washington D.C. this week in hopes of reducing her country’s 39% tariff before August 7. She was unable to secure any face time with President Trump or the trade folks, but met with Secretary of State Marco Rubio. The EU is still giving it the old college try: it will pause its countermeasures for six months in hopes of obtaining carve-outs in its trade deal. And Japan, after a meeting this week with the U.S., said that its trade deal would be “amended” to state that its tariffs would not be stacked. Goods currently paying a tariff >15% would stick with that tariff (not take that tariff plus 15%); and, goods paying a tariff <15% would be lifted to 15% (not that tariff plus 15%). The U.S. has yet to confirm this change.

In any event, the global tariffs are now in effect. We have more clarity on them, but it’s far from 20/20.