Trading narratives took center stage even as Wednesday's major announcement came after the close. With global equities languishing and the dollar strengthening, the US announced tariffs of up to 25% on imports of finished automobiles and components, effective April 3. The measure will accompany "reciprocal" tariffs yet to be finalized but due April 2. GOP lawmakers continued to negotiate notwithstanding differences on budgetary offsets as the CBO pointed to an August hard stop before a debt ceiling breach. Inflation remained Fed officials' chief concern.
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Around the World
Trade:
President Trump announced that his administration would invoke Section 232 of the Trade Act of 1962 to impose a "25% tariff for all cars that are not made in the United States". Though USMCA-compliant parts trade will be excluded for the time being, the announcement drew rebukes from Canada and the European Commission. Trump added that the auto tariffs would be "permanent" but that, with respect to "reciprocal tariffs", "we're going to make it very lenient". (AP, Reuters)
EU officials anticipated double-digit import taxes on all goods next week after meeting with US representatives on Tuesday. Flat levies of up to 20-25% would be additive, meaning the tariffs would be applied on top of others for steel, aluminum, and Venezuelan oil, for example. (Politico)
Separately, Italy issued tax demands to Meta, X, and LinkedIn that link access to notionally "free" services to the acceptance of tracking mechanisms such as cookies. Italy contends that those account openings thus constitute transactions and should be subject to VAT. (Reuters)
US and Chinese officials held "candid" talks as US Trade Representative Jamieson Greer spoke with Chinese Vice Premier He Lifeng on Wednesday. The dialogue followed the US addition of numerous Chinese tech firms to its export blacklist. On Wednesday, President Trump suggested that a deal over a Tik-Tok divestiture ahead of an April 5 deadline could also influence tariffs levied on China. (Reuters)
Vietnam also considered lowering tariffs on US imports in a bid to lessen retributive tariffs next week (NHK World).
Russia-Ukraine:
A limited ceasefire between Russia and Ukraine covering the Black Sea and certain energy infrastructure appeared to be snagged by differences in timing and conditionality. EU demands for a full, unconditional Russian withdrawal before sanctions would be lifted appeared at odds with Russia's insistence that it retain all controlled territory in Ukraine. Secretary of State Marco Rubio said that the US would evaluate additional Russian demands as the latter launched drone attacks on Kharkiv. President Trump conceded that Russia may be "dragging its feet". (AP, Reuters, WSJ)
US Budget:
GOP lawmakers continued to negotiate a path forward ahead of the Easter recess as the Senate's proposed spending offsets were unlikely to match those of the House, which would almost certainly require cuts to Medicaid. The next funding bill deadline is September 30. (Politico)
The non-partisan Congressional Budget Office (CBO) released a report Wednesday estimating that a run-in with the debt ceiling could come sooner. Expecting an "X" date in early August, the CBO suggested that the Treasury could actually exhaust so-called 'extraordinary measures' as soon as late May or June. (AP, Reuters).
See: Federal Debt and the Statutory Limit, March 2025
AI & Copyright:
Anthropic successfully blocked an injunction in a case that alleged its Claude model violated copyright laws in its use of music lyrics. (Reuters)
The Southern District of New York allowed a New York Times suit against OpenAI to go forward while narrowing its scope. The potentially landmark case centers on the limits of "fair use" exemptions. (NPR)
Central Banks, Governments, & Data
Federal Reserve:
Minneapolis Fed President Neel Kashkari spoke at a Fed Listens event in Detroit Lakes. He suggested that confidence may improve once trade-related uncertainty had been resolved and added that "the biggest challenge for us right now is to finish the job" on inflation. (Reuters)
In a speech titled Remarks on the U.S. Economic Outlook and Monetary Policy, St. Louis Fed President Alberto Musalem highlighted a moderating pace of growth, weakening consumer spending, and increased risks that progress on inflation would stall or reverse. He noted that "indirect, second-order effects on non-imported goods and services could have a more persistent impact on underlying inflation", as would higher tariffs imposed and attendant retaliation from trading partners. Reiterating the central bank's focus on expectations, the St. Louis Fed president noted that any increase in long-term inflation expectations "would make the job of restoring price stability and maintaining full employment more difficult".
Musalem supported maintaining a "modestly restrictive" posture and a "patient and vigilant approach", but he cautioned that inflation pressures accompanied by resilient labor markets could mean that "modestly restrictive policy will be appropriate for longer or a more restrictive policy may need to be considered." In contrast, a deterioration in labor market conditions against stable or declining inflation would call for further easing. With uncertainty presenting its own downside risks to growth, the Fed continues to weigh diametrically opposed policy paths as it seeks further clarity in forthcoming policy and data.
Bank of Canada:
The Bank of Canada released the minutes for its March 12 meeting at which it cut its policy rate 25bp, acknowledging that "the impacts of uncertainty and tariffs on inflation were particularly difficult to assess."
Economic Releases:
Commerce Department figures showed durable goods orders climbing 0.9% in February after a 3.3% jump in January in anticipation of tariffs, in contrast to consensus forecasts looking for a month-over-month decline.