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Tariffs return along with capital tax fears

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How companies are navigating US tariff uncertainty - Most companies have disclosed plans to adjust product pricing as costs rise

Source: reuters

US consumers hit the brakes in April after the strongest month of spending since early 2023 while inflation remained tame, consistent with a slowing economy.

Inflation-adjusted personal spending rose 0.1% after rising 0.7% a month earlier, Bureau of Economic Analysis data showed Friday.

The personal consumption expenditures price index, excluding food and energy, increased 0.1% from a month earlier. Compared with a year earlier, the so-called core inflation gauge rose 2.5% from April 2024 — the smallest annual advance in more than four years.

The figures illustrate an undercurrent of anxiety among many American consumers about the economy after the weakest quarter for spending in nearly two years. While higher duties on imports have yet to show up more broadly in higher goods prices, sentiment has slumped and the outlook for personal finances stands at a record low.

The modest rise in spending reflected an increase in services that more than offset a decline in durable goods outlays.

At the same time, the Trump administration has walked back or paused some tariffs as negotiators work toward trade deals with key partners including China and the European Union. On Wednesday, a US court issued a ruling that blocks many of the import taxes.

Separate data out Friday showed a massive narrowing of the US merchandise-trade deficit in April on the largest-ever decrease in imports.

The constant state of flux in trade policy has nonetheless fueled uncertainty, with consumers’ spending attitudes hanging in the balance. Meanwhile, Federal Reserve policymakers will likely keep interest rates unchanged for the foreseeable future until they get more clarity on the impact of tariffs not only on prices but also on other pillars of the economy like the labor market and consumer spending.

Economists are paying close attention to the degree to which companies are passing through higher import duties to consumers. A measure of goods inflation that excludes food and energy climbed 0.3%.

While many companies have so far been absorbing or offsetting much of the hit from tariffs, retailers including Walmart Inc. and Macy’s Inc. have indicated Americans will start seeing price hikes soon.

Source: Bloomberg Europe

Analysts have revised down their oil price forecasts for the third consecutive month as swelling OPEC+ supply and lingering uncertainty around the impact of trade disputes on fuel demand weigh on prices, a Reuters poll showed.

A survey of 40 economists and analysts in May forecasts Brent crude will average US$66.98 per barrel in 2025, down from April’s $68.98 forecast, while U.S. crude is seen at $63.35, below last month’s $65.08 estimate. Prices have averaged roughly $71.08 and $67.56 so far this year respectively, as per LSEG data.

While tensions have somewhat eased between the U.S. and other trade partners, trade conflicts still loom as a key factor that could weaken oil demand, said Tobias Keller, analyst at UniCredit.

“On the supply side, oil prices will be heavily influenced by OPEC+ production decisions, while geopolitical tensions... pose ongoing risks of disruption and price volatility,” Keller added.

Eight OPEC+ members began unwinding output cuts earlier this year, agreeing to larger-than-expected increases of 411,000 bpd for May and June. The members may decide on a similar output hike for July at a meeting on Saturday, sources have told Reuters.

The move “seems driven by a desire to punish non-compliant members rather than support oil prices at any specific level. Compliance will be hard to enforce, especially in Kazakhstan,” said Suvro Sarkar, lead energy analyst at DBS Bank.

Meanwhile, analysts polled by Reuters expect global oil demand to grow by an average of 775,000 barrels per day in 2025, with many pointing to elevated trade uncertainty and the risk of economic slowdown as key concerns. This compares to the 740,000 bpd 2025 average demand growth forecast from the International Energy Agency earlier this month.

With U.S. consumption and China oil demand constrained by fuel efficiency gains, economic uncertainty and the shift to electric mobility, “demand growth is largely coming from the resource nations themselves,” said Norbert Ruecker, head of economics & next generation research at Julius Baer.

Meanwhile, Russia’s war in Ukraine continues to pose a geopolitical risk premium for oil. Analysts say markets have largely priced in the uncertainty.

“Potential de-escalation efforts and the possibility of lifting sanctions on Russian oil could further lower prices,” said Sarkar.

Source: BNN BIoomberg

A legal fight over US tariffs adds another layer of uncertainty for global commerce, as the Trump administration continues to pursue its protectionist trade policy.

If a ruling by the Court of International Trade blocking President Donald Trump’s “Liberation Day” tariffs succeeds, it would bring the average US tariff rate down to 6%, according to Bloomberg Economics. That’s higher than the roughly 2% when Trump took office, but far below the near 27% reached last month. That would certainly be a smaller shock to the economies of the US and its trading partners, Bloomberg Economics’ chief economist Tom Orlik wrote in a note.

The problem is that there’s no way of knowing what happens next. A federal appeals court offered a temporary reprieve on Thursday, setting up for a long legal fight that could wind up at the Supreme Court. Despite the ruling, countries continue to negotiate with the US for bilateral deals including Taiwan and Japan. And even if current tariffs eventually get blocked, the administration is already looking at other options that would keep levies high.

One such tool is Section 122 of the Trade Act of 1974, which would enable the president to impose sweeping tariffs of as much as 15% on imports from countries with which the US runs a “large and serious” balance-of-payments deficit. Economists said that would be the fastest workaround, even though it would require congressional approval after 150 days.

Markets reflected that uncertainty as US and Asian shares fell, with an initial burst of optimism about the ruling meeting a growing sense that tariffs would find their way in somehow.

After digesting the major surprise from the Court of International Trade’s ruling, several economists said they won’t change their baseline assumption on tariffs rates — meaning they’re not going to change their economic forecasts in a meaningful way.

Bloomberg Economics and Deutsche Bank both have a baseline assumption that tariffs will end up around 15%. The administration is counting on revenue from elevated import levies to offset some of the costs of the fiscal package currently in front of Congress. “Abandoning tariffs altogether is therefore not an option,” Deutsche Bank economists wrote.

There could still be some nuanced economic implications, including the risk of fueling inflation, according to Bloomberg Economics’ Anna Wong. Optimism about lower tariffs could prompt consumers to spend more on recreation services, she wrote in a note, and businesses to boost import orders.

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Source: Bloomberg Europe

The European Union has gained leverage in trade talks with the United States after a U.S. court cast doubt on the legality of Washington's "reciprocal"tariffs, EU officials said on Friday.

A U.S. federal appeals court temporarily reinstated President Donald Trump's tariffs on Thursday, a day after a U.S. trade court ruled that Trump had exceeded his authority in imposing the duties and ordered an immediate block on them.

"The uncertainty as to the legality of the 'reciprocal' tariffs certainly gives us extra leverage," one EU official close to the talks said. "The talks will continue, as formally we still look for zero-for-zero tariffs."

The EU was willing to discuss some non-trade barriers with the U.S., EU officials said, but would not touch the EU's taxation system — such as the value added tax or digital tax — or food safety standards.

The EU officials said the uncertainty created by the court rulings and the Trump administration's tariff policy had a positive aspect for Europe, which was seen by markets as an oasis of stability in comparison.

"This is the watchword: uncertainty. It is impossible to know what the status of the tariffs will be next week, not to mention next month," one of the EU officials said.

"If you want sane, stable, even boring, rules-based order and predictable business environment, Europe is the place for you."

Meanwhile, some European companies, worried over the uncertainty and possible major hits to their business, are holding their own talks with U.S. authorities.

VolkswagenCEO Oliver Blume said his company was holding "fair" and "constructive" talks with the U.S. government on tariffs and wanted to make further investments in the country.

Blume, speaking to German newspaper Sueddeutsche Zeitung, said that Volkswagen's main contact in Washington was U.S. Commerce Secretary Howard Lutnick.

Earlier this week, sources told Reuters that Germany's carmakers were in talks with Washington over a possible tariff deal.

The European Commission conducts all trade negotiations on behalf of the 27-nation bloc and companies, or even individual EU countries, cannot legally get a deal outside that framework.

EU-US TRADE TALKS

The European Commission would not comment on the U.S. court rulings because they were internal U.S. procedures.

But it said trade talks between Brussels and Washington would continue, with Europe sticking to its offer of mutual zero tariffs on industrial goods.

"There's no change in our approach, we proceed as planned with both technical and political meetings next week," a Commission spokesperson said.

EU Trade Commissioner Maros Sefcovic in a post on the X social media platform said he held a phone call with Lutnick on Friday.

"Our time and effort fully invested, as delivering forward-looking solutions remains a top EU priority. Staying in permanent contact," Sefcovic said on X.

More trade talks between the U.S. and the EU are scheduled for next week, on the sidelines of the OECD Ministerial Council Meeting in Paris on June 3-4.

The EU officials said the U.S. courts' rulings validated the EU view that the sweeping "reciprocal" tariffs, imposed on all goods from the EU and many other countries around the world on April 2, were unjustified.

They also said that while U.S. courts did not question Washington's 25% tariffs imposed on European steel, aluminium and cars, the rulings could also play a role in the EU's efforts to get those tariffs lowered or removed.

Source: TradingView