Trump’s New Tariff Kicks In, but Not at His Promised 15%

Shipping containers at the Post of Los Angeles
Reuters
By Yuval Rosenberg and Michael Rainey

Good evening. President Trump is set to deliver a State of the Union address at 9 p.m. ET tonight and if you're going to watch, prepare to settle in for a while. "It's going to be a long one because we have so much to talk about," Trump said Monday in previewing his speech. Trump's address to Congress last year, which technically was not a State of the Union, lasted one hour and 39 minutes, the longest speech to a joint session of Congress in at least 61 years. As of this afternoon, betting markets were predicting a roughly 95% chance that the president will bring up Joe Biden, an 84% likelihood that he'll say the word "hottest," 74% that he'll mention "affordability," and a slim 12% probability that he'll mention Jeffrey Epstein or the Epstein files.

Trump's New Tariff Takes Effect at 10%, Lower Than Expected

A new across-the-board 10% tariff on imported goods took effect Tuesday, part of an effort by President Trump to replace a sweeping set of tariffs on trading partners around the world that were invalidated by the Supreme Court last week.

Soon after the high court ruled against one of the cornerstones of his economic policy, Trump vowed to apply a 10% tariff on all imports and then raised the promised tariff level to 15%. However, the tariff took effect at 12:01 a.m. EST today at the 10% level. White House officials said the administration is working on a formal declaration that would raise the tariff to 15%, but the timeline for doing so is still up in the air.

Trump's new tariff is being imposed under a different legal authority than the tariffs rejected by the Supreme Court last week. Section 122 of the Trade Act of 1974 authorizes the president to impose temporary tariffs as high as 15% for a maximum period of 150 days for the purpose of addressing balance-of-payments issues. In a proclamation released last Friday, Trump said that he has determined that the U.S. is facing just such a problem, warranting the imposition of the 10% tariff, though with a list of exemptions including energy products, passenger vehicles, certain agricultural goods and products from Mexico and Canada covered by separate trade agreements.

Overall tariff level drops: The end of Trump's earlier tariff scheme and its replacement by a 10% general levy is lowering the average tariff rate. Analysts at Bloomberg calculate that the average tariff rate has now fallen to 10.2%, down from 13.6% previously. If the general tariff is raised to 15%, the average tariff rate will rise to about 12% (see the Bloomberg chart below).

The lower tariff rate will be good news for several major trading partners, which will see their products become more competitive in the U.S. market. "In either scenario, several economies - including Brazil, China and others in Asia - now find themselves in much better positions," economist Stephen Brown of Capital Economics told The New York Times.

Still, a lower average rate does little to reduce uncertainty among trading partners. Trump threatened countries not to "play games" by reneging on recent trade deals, but that didn't stop China, which is scheduled to meet with Trump next month, from urging the U.S. on Tuesday to abandon the "unilateral tariffs" it has relied on since Trump began his second term in office.

Carsten Brzeski, an analyst with investment bank ING, said the rapid-fire changes in tariffs are destabilizing. "I think it simply adds to the chaos and mess," Brzeski told the BBC. "In terms of uncertainty we're back to where we were last year. The risk of a real fully-fledged tariff war - trade war - escalation is clearly higher than last year."

More legal trouble ahead? Trump's new strategy for his tariff war raises a new set of questions about the legality of his approach. Some critics say the 1974 law Trump is relying on was written during a tumultuous time for exchange rates and the international economy but is no longer relevant. The Trump administration argued in court last year that Section 122 had little relevance to its current situation.

Scott Lincicome of the conservative-leaning Cato Institute told The New York Times that Trump "was a little out over his skis when he said that was a legally tested provision." He said he expects to see lawsuits over the issue.

The results of such a suit are hard to predict, with some experts saying Trump is acting within his rights. That said, no president has ever invoked Section 122 before, and no court has ruled on its use, suggesting that the fate of Trump's trade strategy could once again be determined by the courts.

Democrats Counter Trump With New Proposal on Housing

President Trump is expected to use his State of the Union speech tonight to tout what he sees as the major accomplishments of his first year back in the White House, defend his tariff policies, pressure Democrats to end the Department of Homeland Security shutdown and blame former President Joe Biden for the ongoing affordability worries plaguing so many Americans.

He's also expected to promote some new policy initiatives, including a plan to make home ownership more affordable in part by barring large institutional investors from buying single-family homes.

As both Republicans and Democrats try to appeal to voters by emphasizing efforts to bring down costs, a group of Senate Democrats led by Sens. Elizabeth Warren and Jeff Merkley announced their own proposal Tuesday to limit the ability of investors to buy up homes.

"Private equity and Wall Street landlords are exacerbating the housing crisis by snapping up large numbers of houses and subjecting Americans to massive rent hikes, unfair fees, and needless evictions - all to pad their bottom line," Democrats said in a document outlining their plan. "Today, Wall Street firms own nearly 450,000 single-family homes, more than 2.2 million apartments, and are the biggest landlords of mobile homes in America."

The Democratic legislation, titled The American Homeownership Act and co-sponsored by 16 other senators, aims to end tax breaks and other housing benefits for "Wall Street landlords" and other corporate homebuyers and use the money that would be saved to increase housing supply, among other steps.

The bill would block private equity firms, hedge funds, and other large investors, including companies that buy more than 50 single-family homes to rent out, from getting tax breaks that they typically take for depreciation and mortgage interest payments. The bill would also block those businesses from getting federally backed mortgages or buying foreclosed homes sold by Fannie Mae, Freddie Mac and federal agencies.

The plan would preserve some tax breaks, including those for entities that build and own new multifamily housing or fix up broken-down properties. Builders who construct new single-family homes will be allowed to keep their tax benefits for five years.

Trump has proposed prohibiting institutional investors who own more than 100 single-family homes from buying up more. The Trump plan also includes some exceptions for builders.

The dueling new housing proposals come after both the House and Senate have passed bipartisan bills to promote affordable housing. Lawmakers still need to combine those packages into a single plan.

The bottom line: Housing affordability is an area where Trump and Democrats could potentially work together, and Warren told Politico that the president could help push through a crackdown on private equity's role in the sector. "The person who could make the big difference is Donald Trump," she said.

Number of the Day: $152.3 Billion

The Defense Department got a funding boost of more than $150 billion as part of last year's "One Big Beautiful Bill Act" passed by Republicans. The Pentagon now says it intends to use all of that money this fiscal year, even though the extra funds were allocated to be spent over five years and the department had previously said it planned to use about $113 billion in fiscal 2026. The latest spending plan also includes another $1 billion in Defense Production Act funding, lifting the total funding to $153.3.

Read more about the Defense Department's spending plans at Breaking Defense or Federal News Network.

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