Trump gave in to his love of posting tariff rates on social media, and just unloaded another broadside on unfortunate (mainly non-OECD) countries. It remains to be seen how sustainable this round of tariffs will be, but it seems more likely that he can ignore domestic complaints that result from trade relations with countries that are smaller trade partners than countries like Canada and Mexico.
Happy Canada Day! I do not have a lot of time to look at new topics, but I saw an article about the Treasury curve that triggered a desire to drop a comment.
The above figure shows the slopes at the front end of the Treasury yield curve. Specifically, the black line shows the 2-year yield less the 3-month bill rate, and the red shows the 2-/10-year slope. The current situation is somewhat unusual in that the 3-month/2-year slope is mildly inverted, while the 2-/10-year slope is mildly positive.
To recap, there are four main inflation risks lurking over the U.S. economy.
A large tax cut could help fuel demand.
Tariff wars are only in a ceasefire, and high tariff rates (particularly for Chinese goods) might resume after the ceasefires expire.
A widening of the war might result in a crude oil spike.
Widespread deportations are cutting off some industries from labourers, particularly the agricultural industry.
This article continues the discussion of “why would anyone want to impose tariffs” that was started in this article. The first article discussed a non-standard justification: tariffs as a source of revenue.
The standard justification for tariffs is to better control the development of your domestic economy (and/or to reduce the influence of perfidious foreigners). Although I have limited sympathies for this concept — Canada pursued a policy of developing behind a tariff wall — it is a somewhat dated tool (as I discuss below).
Note: this unedited article may be used within a new chapter in my inflation primer.
The topic of tariffs became of extreme importance in 2025, courtesy of American President Trump’s trade war on the rest of the world. In the modern meaning, a tariff is a tax on imports or more rarely, exports. (In practice, “export taxes” seems to be used in the financial media.) The origin of the term is that it referred to tables, coming from the Arabic ta’rif (a notification or announcement, see reference by Paul Anthony Jones below). The tables were of fees paid by traders, and so the meaning of the word in European languages evolved to refer to fees. In English, the meaning became more specialised to just refer to import/export taxes.
