Trump pumps brakes on Day 1 tariffs

President Trump pumped the brakes on his plan to deliver wide-ranging tariffs as soon as he took office, slow-tracking and toning down changes to the U.S. trade system that figured as a centerpiece of his campaign.

Trump kicked off his second term with a memo that directs federal agencies to study U.S. trade relationships with China, Canada and Mexico, but he did not impose any new tariffs, which are taxes levied on U.S. individuals and companies that import goods from abroad.

The memo, which was first reported by The Wall Street Journal, also seeks to make progress on Trump's 2020 U.S.-China trade pact and looks ahead to a 2026 review of the updated NAFTA deal with Canada and Mexico. But the order stops short of ordering any new import taxes.

A summary of the memo says agencies will assess the updated NAFTA deal and “make recommendations” about U.S. participation in it, the Journal reported.

That’s a far cry from the rhetoric on trade that Trump used while on the campaign trail.

“On January 20th, as one of my many first executive orders, I will sign all necessary documents to charge Mexico and Canada a 25-percent tariff on all products coming into the United States, and its ridiculous open borders,” Trump wrote on social media in November after winning the election.

Trump frequently blasted establishment thinking on trade deals, suggesting an overhaul of U.S. trade doctrine was underway with the imposition of a general tariff, something that hasn’t been widely tried since the General Agreement on Tariffs and Trade was set up following World War II.

“It must be hard for you to spend 25 years talking about tariffs as being negative, and then have somebody explain to you that you’re totally wrong,” Trump challenged Bloomberg Editor-in-Chief John Micklethwait during an interview in October.

Presidents can issue tariff orders without approval from Congress, and there had been heavy speculation Trump was going to single-handedly change the trade system overnight.

Mexican steel producers put out a statement Friday, saying they didn’t pose a threat to U.S. businesses.

“Steel exports from Mexico do not represent a threat to the United States. On the contrary, the U.S. greatly benefits from steel trade flows,” Mexican steel industry group Conacero said.

Even the Federal Reserve noted in December that uncertainty about the U.S. trade posture was clouding its economic projections, saying they had to build out multiple scenarios.

“The effects of trade policy changes could be larger than the staff had assumed,” the Fed’s December minutes say.

Uncertainties had been showing up in foreign markets, as well.

“Foreign financial market pricing reflected weaker-than-expected foreign data releases, expectations of further policy easing by foreign central banks, and potential changes in U.S. trade policy,” Fed meeting participants noted.

Markets and industry groups that work on international commerce seemed reassured by the decision not to immediately impose new tariffs.

The Dow Jones Industrial Average of major U.S. stock rose by more than 300 points in afternoon trading. The technology-heavy Nasdaq Composite was up more than 290 points, and the S&P 500 was up nearly 60 points.

The retail industry, which sources many of its products from countries with considerably lower labor costs than the U.S., welcomed the new trade approach from Trump, saying they wanted to make sure it’s “carefully targeted.”

“We look forward to working with the president to see that the resulting policy changes are carefully targeted and create an environment that attracts investment and protects critical industries,” the National Retail Federation said in a Monday release.

The National Foreign Trade Council, a business advocacy group, said U.S. businesses want to keep access to foreign markets.

“American companies need to maintain a competitive advantage globally, and access to open markets,” the group said in a Monday release. “We are keen to work with the Administration on the details of its economic strategy, including its trade, tax and tariff policies.”

Trump campaigned hard on tariffs, which allowed him to tap into undercurrents of frustration about the globalized economy and to deliver clear and repetitive messaging that likely made a difference in the election.

Trump, who made import taxes the backbone of his first-term economic policy, called "tariff" the “most beautiful word in the dictionary.”

Tariffs are taxes on U.S. companies that import foreign products. The tax, which can take a bite out of the importer’s profit margin, can be avoided by switching to a domestic supply chain, or it can be passed along to a retailer in the form of a price increase.

The latter option added to concerns that Trump’s tariffs could contribute to short-term inflation, which could further be spurred by stimulative tax cuts expected by the new Congress and increased labor costs stemming from a clamp down on immigration.

But Trump’s lack of immediate action on tariffs likely bodes well for the pace of price increases.

In his inaugural address, Trump said he wants to bring manufacturing jobs back to America, which have largely been outsourced to foreign production centers, representing another point of economic frustration for many voters.

Manufacturing jobs have been on the decline since the late 1970s and really fell off in the 2000s following the passage of a string of “free trade” deals. While they rebounded slightly in the 2010s to a recent high around 13 million jobs, they have yet to approach historical levels.

A surge in manufacturing construction investment during the Biden administration could reverse this trend to some degree. After hovering around $6 billion annually, the number shot up to more than $21 billion in October, following the passage of a major infrastructure law, a climate technology law and a bill to promote semiconductor production.

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