PIMCO's Libby Cantrill on Higher Tariffs and Tax Policy Under Trump

Congressional Authority on Tariffs

• 🏛️ Congress has delegated tariff authority to the president through various trade acts, making it difficult to reverse such policies.
• ⚠️ Overriding a presidential veto on tariffs would require a supermajority (two-thirds of each chamber), which is practically challenging.

Trump's Trade Worldview

• 🎯 President Trump operates with a worldview on trade that he has held for 40 years, believing he has a mandate and unfinished business from his first term.
• 📊 He views the US trade deficit, specifically the goods trade deficit, as the primary scorecard for US economic success.
• 📈 Our view is that tariff rates are going to be going up, which will act as a headwind on growth and potentially impact inflation.

Impact of Tariffs and Tax Policy

• 💰 Tariffs do generate revenue for the Treasury, which could fund further tax cuts rather than debt reduction.
• 🚀 The potential for significant revenue from tariffs and the passage of tax cuts could help balance some of the economic headwinds from increased tariffs.
• 📈 While tariffs alone look negative for the economy, layering in tax policy and certainty might offer a more calming effect.

Future Tariff Landscape

• universal 10% tariff is considered a minimum destination for trade policy.
• Sectoral tariffs on chips, pharma, and autos, along with elevated tariffs on China, are also anticipated.
• 📉 Managers are responding by viewing these developments as a headwind to growth with some upward pressure on inflation, but primarily a growth story.

Inflation and Growth Outlook

• ⚠️ Higher tariffs could lead to a one-time increase in the price level, potentially feeding into inflation expectations.
• 📉 However, the primary focus remains on the growth side rather than inflation, despite concerns about negative nominal GDP.