State of US tariffs

This is the Macro Brief from HSBC Global Investment Research, our weekly look at the issues driving financial markets across the world. I'm Piers Butler in London. Now, it's been just over a year since the Trump administration introduced wide-ranging tariffs on goods entering the United States, a move that caused shockwaves across global trade.

Since then, we've had tariff removals and revisions, as well as refunds. So on today's podcast, we're taking stock of where we are now, which US tariffs are currently in effect, and what could be coming down the line. To do that, I'm joined in the studio by trade economist, Shanella Rajanagam.

Shanella, great to have you back on the podcast. Thanks Piers. I guess, given my intro, let's start with a quick recap of what has happened since the infamous Liberation Day.

So a lot has happened since Liberation Day. And if you remember, those reciprocal duties that were implemented on Liberation Day were done so under the International Emergency Economic Powers Act, or IEPA. So in February this year, the US Supreme Court actually struck down the use of IEPA to impose duties.

And so the Trump administration had to quickly pivot, and it basically replaced those duties, some of which were as high as 50%, with a flat rate 10% tariff on imports from all countries. But this temporary tariff is due to expire on the 24th of July. And so now it is working to establish a more durable tariff regime in its place.

And in order to do so, it has launched two tranches of Section 301 investigations. So what are these investigations? What do they do?

So the Section 301 investigations are essentially into unfair trading practices. So the first tranche is into 60 economies over their forced labor compliance policies. And the second tranche is into 16 economies over excess capacity.

We're going to come back to the forced labor ones, because there's been some news literally today about this. Just to be clear, so what is currently the effective tariff rate on imported goods to the U.S. and what percentage of overall imports are being impacted? So currently, the U.S.'s effective tariff rate is around 11%, and that's actually the highest it's been since the early 1940s, and not considering the spike last year following Liberation Day.

And according to our calculations, more than 40% of U.S. imports currently attract duties. Now to come back to what you said earlier, the Supreme Court struck down the initial wave of tariffs. So what's happening in terms of the potential reimbursements?

And do you think that's going to filter through into the ultimate consumer? Yeah, that's a good question. So the tariff refunds have now started to flow.

According to the Trump administration, they had collected about $166 billion worth of duties under IEPA, and they've started to process about $85 billion worth in refunds, so about half. Whether or not it starts to flow to consumers really is the question at the moment, because only companies and customs brokers can actually apply for the refunds. So you have some companies, like FedEx, saying that they will pass that on to the consumer, but it really does remain to be seen.

Interestingly also, in terms of the recap, there have been some unintended consequences. I'm thinking in particular of trade covered by the USMCA trade agreement. That's a trade agreement between the US, Mexico, and Canada, right?

That's right. So even though the USMCA partners of Canada and Mexico have had additional tariffs imposed on their flows, the bulk of their trade still goes in duty free into the US. And actually a flip side of these higher tariffs is that compliance under the USMCA has increased.

So in 2024, about 44% of US imports from these partners were USMCA compliant, but that increased to about 86% in the first three months of this year. So in reality, a lot of people weren't bothering to be compliant, but with the higher tariffs, they've all said, right, we better do the paperwork. Exactly.

You know, an FTA is only as good as if a business actually uses it, and it seems as though these higher tariffs are now enough to make businesses actually claim the preferences. So we shouldn't forget that the Supreme Court's ruling didn't impact sectoral tariffs and that there have been some significant divergences in how they have impacted different industries. Can you maybe illustrate that?

Yes. So that's right. So all the Section 232 sectoral tariffs still remain in place.

And crucially, the global flat rate 10% tariff does not apply to the same goods that are targeted by the sectoral tariffs. But the sectoral tariffs can be quite high. So for example, tariffs of between 15% to 50% on certain metals, steel, aluminium, copper, 25% tariffs on autos and autos parts, 25% tariffs on certain computer chips, and 100% tariffs on pharmaceuticals that are due to kick in in a month or so.

And when we look at some of the trade data, you can see some shifts. So for example, US import volumes of steel and aluminium have declined, but there has been a bit more of a mixed pattern for autos trade. So for example, imports of vehicles under tariffs have fallen since the new duties kicked in, but autos parts have actually risen.

And that could be because a lot of those parts are actually coming in USMCA duty free. Unintended consequences, as we've just said. So let's come back to what's next in terms of tariff legislation, and in particular today's announcements.

Yes. So today, or very late Tuesday in the US, the USTR released the findings of its first tranche of Section 301 investigations, and it is proposing new additional tariffs of between 10% and 12.5%. So 10% on imports from 15 partners, including the UK, EU, Canada, and Mexico, and 12.5% on imports from the other 45 economies that were under investigation.

And now crucially, these tariffs are not effective immediately. There's a public consultation process, and the USTR will be holding a consultation in early July. But on top of all this, we're still waiting on the findings and the proposals for the second tranche of Section 301 investigations.

So it could very well be the case that some of these economies are hit twice by new tariffs. There could also potentially be more sectoral tariffs to come. There are a number of sectoral investigations underway, including on PPE, critical minerals, robotics.

Plus, the USTR has also recently recommended increasing tariffs on Brazil, so imposing a further 25% tariff. It's opened another probe into Vietnam's trade practices as well. So this is all to say there could definitely be a lot more tariff uncertainty to come, even though I don't think we'll necessarily see as big a shock as Liberation Day again.

There's certainly waves of tariff actions that could increase the uncertainty for businesses. More of a sort of multi-pronged strategies, but it's fair to say that tariffs are here to stay. Exactly.

We're going to take a break and we'll be back in a minute. A quick message here from the Macrobrief team. If you're one of our listeners on YouTube, then we'll be moving soon.

To ensure you never miss another episode of the Macrobrief, then be sure to head to HSBCCIB on YouTube and hit the subscribe button. Now back to today's episode. So irrespective of what we've been discussing in terms of tariff legislation, trade flows have been upended by the US-Iran conflict and what we would refer to as normalisation hinges on a peace deal.

However, even if one is announced tomorrow, which it might be, how long will normalisation take? And also, is there likely to be a permanent rerouting of some trade flows given the perception of residual risk in the Strait of Hormuz? I was struck by your colleague Paris Jane's recent note, who is our global transport analyst, that container shipping rates have been soaring and are now 93% higher than they are pre-conflict.

That's right. So, you know, what is normal for trade these days is very different to what it used to be. And it seems to a certain extent, businesses have got used to this period of volatility.

And as we've written about recently, trade is still finding a way. So for example, you know, crude oil export volumes from Saudi Arabia increasingly being diverted from its eastern Gulf port to its Red Sea port. So there is some of that trade diversion happening.

Of course, you know, shipping rates, air cargo rates are skyrocketing at the moment. But in terms of when exactly we might see that normalisation, it really depends on when a U.S.-Iran peace deal is reached, and crucially one that actually facilitates free movement through the Strait of Hormuz. The risk, of course, being that we could be in this type of conflict period or volatile period for some months yet.

So even if the Strait reopens, could it potentially close again? And that's a risk that, you know, businesses, shippers have to be mindful of. You mentioned Vietnam as part of the U.S. administration's investigations.

Is that sort of referring to this issue of diversion versus reconfiguration? Is Vietnam and Taiwan particularly the focus of that? Yeah.

So this is something we've been looking at for a number of years now, in fact, since the U.S.-China trade war initially started. And the story really is more one around trade diversion rather than a full reconfiguration of supply chains. So it's very clear China is losing import market share in the U.S.

It's now the U.S.'s third largest source of imports behind Mexico and Canada. What was it before then? It was number one.

But also, at the same time, China has been increasing its export share to some of these third markets, like Mexico, like Vietnam. So from that, we could determine that some of the trade is being rerouted via these countries to the U.S. And it's more pronounced when we look at things like electronics.

For example, at the product level, the U.S.'s import share of machinery and electronics from China and the EU fell over the past year. But India and Vietnam have risen in importance, and obviously they're very much docked into Chinese supply chains as well. What's happening to other trade deals?

Did the summit between President Trump and Xi deliver any major breakthroughs? So there was no major breakthrough on tariffs, but the U.S. and China did agree some other trade deliverables, including to establish a board of trade and a board of investment. China also agreed to some additional purchase commitments of around $17 billion worth of U.S. agricultural goods each year until 2028.

It also agreed to tackle some non-tariff barriers, so resume registration of eligible U.S. beef suppliers and resume poultry imports from some U.S. states. In terms of the board of trade, the USTR actually just this week launched a public consultation on that with the idea that this will facilitate tariff reductions on both sides in around $30 billion worth of goods. So maybe to finish on, because there is a lot going on, what's happening to trade forecasts?

I mean, I was very struck that 2025, despite all the tariff uncertainty, still saw growth in world trade, which seemed to sort of really exemplify the resilience of trade, really. What's the outlook now? Yeah, absolutely.

So global trade actually ended 2025 on quite a strong footing. And now we have to consider the impact of the Middle East conflict. So it's very, very difficult to forecast at the moment.

I will say the World Trade Organization is currently expecting goods trade growth of 1.9 percent this year. But if we do have sustained energy prices that are quite high, that could shave about 0.5 percentage points off. And on the services side as well, it's expecting global export growth of 4.8 percent.

But that could come in just above 4 percent, depending on the impact of the conflict on international travel. Well, we'll have to see. That's all we have time for today.

But Sinead, thank you very much for updating us. Thanks, Piers. Sinead Rajanag, I'm there on the latest US tariff situation.

So that's it from us today. A reminder that we also release an Asia-focused podcast each week. Please check that out if you haven't already.

It's called Under the Banyan Tree, and you can find it wherever you get your podcasts. And finally, if you'd like to get in touch, please contact us at askresearch at HSBC.com. This episode of the Macrobrief was hosted by me, Piers Butler, and produced by Tom Barton.

Please like and subscribe wherever you get your podcasts. Thanks very much for listening, and we'll be back next week.