From the Desk

While tariff threats and some enactments continue, more formal work is being polished off in the background. On April 1, U.S. President Donald Trump will receive a report that is expected to lead to a range of reciprocal tariffs to be announced on April 2. The key question is, how broad will these be? Will it be a handful of products or thousands? 

In the modern era, tariffs have tended to be used sparingly. The infamous U.S. blunder in the 1930s was enough to educate future legions of economists and policymakers. Back then, the U.S. Smoot-Hawley tariffs on thousands of goods drove other countries to vigorously retaliate. Global trade plummeted and the Great Depression was exacerbated. 

It is still unclear if this administration’s tariff ambitions extend beyond attempting to fix trade inequities, or if the intent is to generate tax revenue. Unlike the progressive individual income tax system, in which rates rise with income, tariffs are regressive. As just like a sales tax, every buyer pays the same regardless of their means. 

The April report and its resulting actions should help reveal much of this policy direction. Right now, measures of global uncertainty and U.S. trade policy are at or near all-time highs. And the size and scope of tariffs so far, which in turn invites commensurate retaliation, have been much larger than initially expected.

Sources: Bloomberg, Financial Times, 2025.

The U.S. Consumer Price Index (CPI) increased by 0.2% in February, 10 basis points (bps) below consensus estimates, bringing the headline year-over-year figure down to 2.8%. The positive surprise was mainly attributable to a 4.0% month-over-month drop in airfares, which was a 4 bp drag on the headline reading. Even after the week’s positive surprise, inflation remains stubbornly above the U.S. Federal Reserve’s 2% target. Looking ahead, there remains significant uncertainty on how tariffs will impact inflation. While tariffs themselves should put upward pressure on prices to some extent, recent surveys of business and consumer confidence, as well as estimates for Q1 GDP growth, have shown a meaningful deterioration. This may put downward pressure on inflation through weaker demand and less willingness to accept price increases.

Sources: U.S. Bureau of Labor Statistics, University of Michigan, National Federation of Independent Businesses, Federal Reserve Bank of Atlanta, 2025.