Tariff Monitor: Trump hits pause on Canada and Mexico

On March 4, President Trump placed 25% blanket tariffs on Canada and Mexico, except Canadian energy products that would be subject to 10% tariffs, and an additional 10% across-the-board tariff on China. Shortly after the tariffs went into effect, the ones on Canada and Mexico were delayed for a second time. They are now set for April 2.

What you will learn:

• The on again, off again tariffs are fanning uncertainty. If they were to be implemented as proposed, it will cumulatively raise the US effective tariff rate above 10%, a level not seen since the 1930s. The new tariffs would shave 0.4ppts off GDP growth this year and lead the core PCE deflator to average 3.1% in 2025.
• Tariff proposals put the Federal Reserve in a bind as they will ding the economy while putting upward pressure on inflation. The Fed’s reaction function currently puts a greater weight on inflation; therefore, the tariffs will cause the Fed to stay on the sidelines, consistent with our forecast for the next rate cut to occur in December.
• We will regularly update our tariff monitor to track which goods are subject to tariffs, the economic implications, and how the Trump administration’s trade policy is unfolding relative to the assumptions in the baseline forecast.

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