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Uncertainty Of Future Tariffs Continues To Hamstring Economy
On April 2 President Donald Trump declared "Liberation Day," announcing a new tariff strategy aimed at allegedly correcting trade imbalances and protecting U.S. workers and industries.
It was the wrong medicine for misdiagnosed illness. Internal U.S. economic problems are caused by legal incentives for financial speculation and disincentives to produce goods people need. Tariffs won't solve that problem.
The tariff rates Trump introduced were ignoring economic realities. The whole economic concept behind was based on some advisors weird theory. It was obvious that the whole Trump strategy implemented through tariffs would fail.
China and other pushed back against U.S. tariffs by introducing some on their own. The markets reacted appropriately. The values of the U.S. dollar, U.S. stock markets and U.S. treasuries decreased.
By April 9 Trump was forced to pull back. He paused the tariffs for most countries for 90 days but increased tariffs on China.
China responded in kind.
Three days later Trump announced another retreat. Smartphones and computers were excluded from the previously introduced tariffs.
Speculators may well have liked the uncertainty Trump's irresponsible tariff tactics introduced into financial markets. But for markets of real goods uncertainty is a venom that blocks all activities. It soon became obvious that the tariffs would cause huge problems for the U.S. economy.
Trump tried to press China to concede to U.S. terms in some new trade deal. But China rejected all talks until tariffs were reestablished at the previous levels.
That concession was made. Talks over the weekend in Geneva saw the U.S., again, pulling back.
The editors of the Wall Street Journal don't hold back in their comment:
Rarely has an economic policy been repudiated as soundly, and as quickly, as President Trump’s Liberation Day tariffs—and by Mr. Trump’s own hand. Witness the agreement Monday morning to scale back his punitive tariffs on China—his second major retreat in less than a week. This is a win for economic reality, and for American prosperity.
Make that a partial win for reality. The Administration agreed to scrap most of the 145% tariff Mr. Trump imposed on Chinese goods on April 2 and later. What remains is his new 10% global base-line tariff, plus the separate 20% levy putatively tied to China’s role in the fentanyl trade, for a total rate of 30%. In exchange, Beijing will reduce its retaliatory tariff to 10% from 125%. The deal is good for 90 days to start, as negotiations continue.
And therein, I believe, still lies the big problem.
The editors conclude:
The 30% tariff is still exceptionally high for a major trading partner, but the 90-day rollback spares both sides from what looked like an impending economic crackup. U.S. consumers were facing widespread shortages, while China feared growing unemployment.
For now, nothing will change with those symptoms.
It is not only the very high 30% tariff (for mostly products with very low profit margins) that will prevent Chinese factories from resuming production and U.S. retailers from restocking their shelves.
The poison that still paralyses everything is the uncertainty and insecurity that comes with the 90 days limit of the deal and with no perspective of what might follow. Who will post orders for, let's say return-to-school items, if it is unknown what price will have to be paid for them?
Paul Krugman agrees:
The prohibitive tariff has been paused, not canceled. Nobody knows what will happen in 90 days. I’ve long argued that the uncertainty created by Trump’s arbitrary, ever-changing tariffs is at least as important as the level of those tariffs. Well, the uncertainty level has arguably gone up rather than down.
This retreat probably hasn’t come soon enough to avoid high prices and empty shelves. Even if shipments from Shanghai to Los Angeles — which had come to a virtual halt — were to resume tomorrow, stuff wouldn’t arrive in time to avoid exhaustion of current inventories.
I guess it’s good news that Trump slammed on the brakes before driving completely off the cliff. But if you think that rationality has returned to the policy process, that the days of government by ignorant whim are now behind us, you’ll be sorely disappointed.
I agree with that take.
Whether 145% or 10%, tariff uncertainty is enough to stop U.S. gold and silver imports, distort the metals market at all levels – Experts
(Kitco News) – Gold prices have pulled back since the United States and China announced the lowering of trade tariffs for 90 days amid ongoing negotiations. But whether tariffs today are 145%, 30%, or 10%, the uncertainty gripping U.S. trade continues to make meaningful importing activities impossible. And despite early indications that precious metals would be exempt from Trump’s tariffs, trade activity in the sector is far from normal.
Josh Phair is the CEO of Scottsdale Mint. He said that while the headline may be ‘Gold and Silver Imports are Tariff-Free’, the reality is not nearly so simple.
“They said that bullion is exempted,” Phair told Kitco News. “But if we start looking at a lot of the tariff codes, everyone’s going to need to know exactly what is considered bullion, because in our industry we call coins bullion, like from Perth Mint, for example, but that actually is legal tender. It’s a monetary bullion product.”
Phair said it’s not a straightforward process to determine whether something is tariffed or not, especially when it fits into two or more categories.
“It looks like we’ve got some clarity on a piece of it, but a lot of people are waiting to know everything,” he said. “What nobody wants is to bring in a $10 million shipment of something and get slapped with $1 million-plus in taxes. It feels like the whole world is waiting for clarity.”
Phair, who works with both large and small companies, said the uncertainty is causing importers to sit on their hands. “Unfortunately, when you’re sitting on your hands, there’s no business happening,” he said. In our industry, if you look around, there’s a lot of things missing. Certain British product got held up and hasn’t been imported, certain things that we would normally have in our market on the coin side for retail.”
And as if the different countries of origin and different categories of products weren’t challenging enough, different precious metals are not treated the same either.
Phair said that while gold and silver have the most clarity, uncertainty remains for the other metals. “It looks fairly positive for platinum and palladium, but what about the other minerals? They provided a critical minerals list, but it was not all-encompassing,” he said. “So the question is, does that get broadened? Does that get tightened? There’s a little bit of disarray still to this.”
Phair said that a number of precious metals organizations are actively seeking clarity from the U.S. government on these gray areas and omissions.
“The multinational refineries and companies, they’re going to seek a legal opinion letter from [U.S. Customs and Border Protection] because they just don’t want to get hit,” he said. “These guys are doing billions of dollars in and out. [Customs] might say ‘That actually goes in that category, and that’s actually 19%, not 10%.”
“In precious metals we’re working off of sometimes sub-1% spreads, a tiny spread, so you would get destroyed.”
Phair said there’s plenty of precedent for these kinds of preemptive rulings, but they were costly and time-consuming even before Trump’s tariffs.
“I’ve done this,” he said. “I’ve actually gone to U.S. Customs with a law firm, and it took us eight months to get a ruling. This was in normal times, that was seven years ago now.”
Another challenge precious metals importers face is the convoluted and seemingly arbitrary criteria governing the products, which go far beyond the bullion itself.
“Pre-Trump here, if you brought in a gold blank that is in the shape of a rectangle, it was tariff-free,” Phair said. “If you brought a circle blank in the shape of a coin, with nothing on it, it was tariffed either 4% or 7% on gold. It was about the shape. So we got a legal opinion letter that if we brought in a coin, but we’re using it to strike a legal tender coin for another third-party country, we got an exemption for that, but we had to go seek an opinion from customs.”
“We actually did that, because nobody wants to bring in millions and millions of dollars, and then later they say, ‘Oops, you owe us, and let’s go back three years.’ Nobody wants to do that.”
Thankfully, not all of the preexisting U.S. trade frameworks have been abandoned, so importers can prioritize sources with relatively lower uncertainty. “Right this minute, I think people are feeling a lot more comfortable between Canada and Mexico, under the USMCA than they are the European stuff,” Phair said.
“I feel more confident today than I did two weeks ago,” he added. “But I’m also smart enough to know that our governments don’t always act in a rational way. So we definitely are seeking clarity.”
Jeff Christian is Managing Partner of CPM Group. He also believes that the fundamental problem isn’t how high or low the tariffs are, but how the numbers are being calculated, and how they keep changing.
“When it comes to tariffs and what tariffs mean for precious metals, the first thing you have to say is [Trump] is being totally arbitrary and capricious,” Christian told Kitco News. “He’s changing his view two, three times a day. He’s throwing things in, and he is taking things out. So you really can’t say definitively what the tariffs will apply to, or if there even will be tariffs.”
He said the tariffs on specific metals or products remain unclear. “Are tariffs being applied to gold, silver, platinum, palladium? It changes from day to day, hour to hour, but it looks as if they will be exempt,” he said. “Who knows?
“I think that there’s a tremendous amount of uncertainty, and there was a lot of gold and silver that was brought into the United States in recent months in advance of tariffs being imposed, on the risk or fear that sanctions would apply to precious metals,” Christian said. “Right now, the people I talk to in the precious metals markets talk about the excess supply and the overhang in the New York market. There’s metal leaving New York, going back to London and Switzerland, and other places.”
“There’s plenty of precious metals within the United States, so that if investors want to buy precious metals, it’s there, and premiums are relatively low.”
But what Christian believes is far more important is the effect that tariffs will have on the overall economies of the United States and other countries.
“The tariffs are very destructive of economic activity,” he said. “If it’s a 20% or a 25% duty, it’s a tax. You’re taking that away from the producer, and you’re taking it away from the consumer. So there’s less consumption and there’s less profit for producers, importers, and exporters.”
“That’s probably the more destructive and important thing to pay attention to, is what the tariffs will do to business, and to businesses that use gold and silver.”
Christian said the effects of the tariffs will be as complex as the industries and markets they’re hitting. “It’s a two-edged sword,” he said. “It will hurt demand for gold and silver and platinum and palladium in manufactured products, but it will help investment demand for gold and silver, because investors are watching, and they know what tariffs do to economic activity.”
“We have people who see greater risks and uncertainties today, greater anxiety over the economic and political outcome in the United States and in the world, than at any time going back to December of 1941,” he said. “People are extremely concerned.”
Christian said this uncertainty manifests in different ways – not only increased investor demand for gold and silver, but increased concern over what kind of bullion products they’re holding, where, and with whom.
“We have seen investors increasingly worried about their counterparty risk in financial assets,” he said. “I guess it started in 2022, you saw a lot of investors getting out of gold and silver ETFs and getting into direct ownership of fiscal gold or silver. We have a lot of clients who are saying, ‘I want to revisit where I store my gold and silver, because I’m less comfortable now than I used to be with whichever depository in whichever country I’m holding my metal. So you’re seeing increased investor concern and uncertainty across financial assets.”
Christian said this concern extends beyond the question of national borders, all the way to the corporations and their insurers.
“Is this stuff held at a depository that has sufficient instruments that if something went wrong, I could be made whole?” he asked. “Or would I be in a situation where they would say, ‘Okay, we have to wait and see, this is going to go into receivership and we have to wait until the receiver goes through all of the papers and says if people get 100% on the dollar of their value, or they only get 70% of the dollar value.”
“There’s a lot of increase in concern about counterparty risk,” he said. “It’s something that was around for two and a half years, but it has clearly gotten more significant in recent months.”
But Christian said that the most important thing to watch is still what these new trade tariffs will do to the global economy. “If you go back to 1929, 1930, to Smoot-Hawley, the last time we had [this degree of tariffs], they exacerbated the depression,” he said. “That’s probably the major effect that tariffs will have on precious metals, because that’s negative for the world economy, though that may be good for gold and silver in terms of stimulating investment demand.”
https://www.kitco.com/news/article/2025-05-14/whether-145-or-10-tariff-uncertainty-enough-stop-us-gold-and-silver-imports
Posted by: Menz | May 14 2025 22:06 utc | 195
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