Fun Fact: Close to $2.2 billion in annual trade will be disrupted given the recent border closure and trade halt between India and Pakistan, impacting India’s access to Afghanistan and forcing these countries to find alternative markets for traded goods.

Two New Tariff Orders

What’s Happening: The White House released two new executive orders this week with updates on automobile tariffs and clarification on how tariffs imposed under different authorities interact with one another. Tariffs on automobile parts are set to take effect on May 3, while the administration has also outlined a new system that addresses the reality that vehicle contents are a mixture of U.S. and imported products. Accordingly, under the executive order, automobile manufacturers can apply for limited tariff offsets for vehicles depending upon the percentage of the vehicle’s value considered U.S.-assembled or in compliance with the United States-Mexico-Canada Agreement. Additionally, the administration provided clarity on which tariffs compound upon each other and which do not. Anti-dumping and China-specific tariffs will stack on top of any other imposed tariffs while automobiles subject to tariffs, for example, will not face additional tariffs that stack.

Why It Matters: Additional tariffs on automobile parts are expected to impact up to $200 billion in annual imports and will undoubtedly raise the cost of vehicles despite newly introduced tariff offsets. These new offsets, which can be viewed as a slight tariff reduction or rebate, are equal to 3.75 percent of the manufacturer’s suggested retail price of vehicles produced in the United States. This drops to 2.5 percent starting on May 1, 2026, and lasts until April 30, 2027. These offset rates reflect the fact that the administration’s 25-percent tariff on automobiles is applied to all but 15 percent of the foreign value of a U.S.-assembled car. For instance, if a car is composed of 50-percent foreign content, a tariff applies to just 35 percent of the value. While this is a step in the right direction for reducing the impact of price hikes, U.S. consumers and manufacturers will still feel significant cost pressures, with any potential reshoring of the automotive industry likely many years down the road. The tariff offset application process will also add new stress to an already understaffed Customs and Border Protection and create an additional documentation and data collection burden for U.S. automakers. Regarding the other executive order, the administration clarified which tariffs stack on top of one another and which do not, an area of confusion for many U.S. businesses and policy analysts. The tariffs on Canada and Mexico, as well as the automobile tariffs, are not subject to additional tariffs, meaning other tariff authorities do not stack on top. Steel and aluminum tariffs do stack on top of one another, meaning the topline rate may be as high as 50 percent for certain goods. Furthermore, all anti-dumping duties and tariffs on China are eligible for stacking, which brings the rate for numerous Chinese imports well above 100 percent. This enormous added cost has already been felt at U.S. ports, where cargo shipments from China are down by as much as 40 percent from early April.

Looking Ahead: These two executive orders should provide much needed clarity and guidelines for the ever-changing Trump tariff regime. The positive here is that the orders will allow businesses to plan for the longer term. The negative is that significant tariff rates remain in place that will soon be felt by U.S. consumers and contribute to economic strife in the coming months. It is expected that tariffs will be added, not subtracted, in the not-so-distant future, with the semiconductor and pharmaceutical industries next in the lineup.

May the First Trade Deal Be With You

What’s Happening: As of May 1, there has been no publicized progress toward establishing a trade deal with any of the countries targeted with paused U.S. “Liberation Day” tariffs. The 90-day delay of these tariffs gives the Trump trade team until July 8 to negotiate with dozens of trade partners on both tariff and non-tariff barriers. While speculation continues to mount on whether Vietnam, India, Japan, or the United Kingdom might receive the first trade deal, the administration has yet to release any concrete information. Secretary of Commerce, Howard Lutnick, has stated that one trade deal has already been finalized but has not revealed which country will be first. Furthermore, the status of U.S. negotiations with China remains unclear: President Trump has indicated there have been productive conversations that could lead to tariff reductions, while Chinese officials have denied these claims. When Treasury Secretary Scott Bessent was asked for clarification on Tuesday, he refused to answer whether the United States is in serious trade talks.

Why It Matters: The 90-day tariff pause, which is now roughly 25 percent over, provides little time for the typical back-and-forth trade discussions that require months if not years to craft a trade deal. The U.S. Trade Representative does have a page dedicated to ongoing negotiations, but it includes only two sentences that can be summarized as: “We’re working on it.” How future agreements are negotiated, and which country receives the first deal, will matter as well. For example, there is a significant difference if these deals are official, written trade agreements rather than verbal commitments to buy more U.S. products, as one has long-term economic implications and the other can be ignored down the line. Whether these trade negotiations are discussed in an informal, one-on-one setting or a formal meeting between trade teams may also influence the level of detail for future trade deals. Secretary Bessent stated at a press conference on Tuesday that the United States is very close to establishing a trade deal with India, yet did not provide a timeline or clarify whether this would be the first agreement. The country that receives the first deal will undoubtedly experience a positive market reaction and may indicate where the Trump Administration’s priorities lie.

Looking Ahead: It will be difficult for the U.S. Trade Representative to negotiate potentially 100 separate trade agreements within 90 days, meaning President Trump must soon determine whether tariffs will be reinstated or delayed further. The domestic politics of other countries will also throw a wrench into things. South Korea, for example, has stated it does not expect to negotiate a trade deal until after June 3 due to its upcoming elections. This would leave it about one month to figure out a completely new trade regime with the United States, disregarding any new political complications that may arise after the election results.