Trump's Team Considers Gradual Tariff Increases

Members of President-elect Donald Trump’s incoming economic team are exploring the possibility of implementing a gradual increase in tariffs as part of their trade strategy. This approach, designed to bolster negotiating power without triggering a sharp rise in inflation, could see tariffs incrementally raised by 2% to 5% each month, according to sources familiar with the discussions. The plan would be executed under the executive powers granted by the International Emergency Economic Powers Act.

Though the proposal is still in its early stages and has not yet been presented to Trump, sources indicate that the idea is in the early phases of deliberation. Key advisers working on the plan include Scott Bessent, Trump’s nominee for Treasury Secretary, Kevin Hassett, who is set to lead the National Economic Council, and Stephen Miran, nominated to head the Council of Economic Advisers. Sources, who requested anonymity, noted that these advisers are discussing the plan internally.

None of the individuals directly involved in the deliberations provided comments on the matter, nor did spokespeople for Bessent and Hassett respond to requests for information. Miran also declined to comment. A spokesman for Trump’s transition team referred to previous public statements and social media posts from the president-elect regarding tariffs.

Following the report, the Chinese yuan, along with other currencies tied to the Chinese economy like the Australian and New Zealand dollars, saw a modest uptick. The offshore yuan rose by 0.1% during Asian trading on Tuesday, and the Australian dollar strengthened by 0.3%. Investors expect that China will ultimately allow the yuan to weaken further if Trump moves forward with increased tariffs on Chinese exports, despite the country’s recent efforts to support the yuan, which remains near historically low levels.

Tariff Proposal and Market Uncertainty

During his 2024 presidential campaign, Trump proposed broad tariffs on imports, including a minimum 10% to 20% tariff on all imported goods, with rates on Chinese shipments possibly exceeding 60%. Since his election in November, discussions have intensified regarding the scope and implementation of these tariffs. While some reports have suggested a gradual tariff rollout, Trump himself dismissed one such proposal, calling it false.

This ongoing uncertainty has left investors and companies uncertain about the future trajectory of trade policies under the incoming administration. The S&P 500 Index briefly dropped below its pre-election levels on November 5, though it later rebounded. Meanwhile, concerns over inflation—potentially exacerbated by tariffs—have led investors to sell off Treasury bonds, raising borrowing costs and contributing to broader economic challenges.

With just one week until Inauguration Day, economists are left speculating about the potential economic impact of Trump’s tariff strategy. For the Federal Reserve, this uncertainty complicates the outlook for economic growth and inflation. There are concerns that retaliatory measures from other countries could stoke inflation, creating a potential headwind for the economy.

Global Economic Implications

The uncertainty surrounding Trump’s trade policies is also having a ripple effect globally. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), pointed out that concerns over tariff threats are already pushing up long-term borrowing costs worldwide. The rising interest rates are a “very unusual” occurrence, as short-term rates have declined in contrast.

Georgieva emphasized that the global economic outlook is being clouded by these trade uncertainties, which are contributing to higher long-term interest rates, even as short-term rates remain lower. This dynamic reflects the complex economic environment that is unfolding as Trump prepares to take office.