Is it ever good news when taxes go up? Maybe only in the funhouse world of President Trump’s trade policy.
On July 23, Trump said he had reached a trade deal with Japan that will involve a 15% tariff Americans pay to import Japanese cars and other products. Before Trump took office in January, the average import tax on Japanese products was 1.6%. So Trump has raised the tax on Japanese products by 13.4 percentage points.
Markets rejoiced on the news. The S&P 500 (^GSPC) index jumped nearly a point the day Trump announced the Japan deal, to close at a new record high. Japan’s Nikkei index jumped as well. It’s not that investors love higher taxes. It’s that many thought Trump’s new tariff on Japanese imports would settle at 20% or higher, and 25% for cars. So a 15% tax beat expectations, in the market’s familiar parlance.
Read more: What Trump’s tariffs mean for the economy and your wallet
Investors think a similar deal with the European Union could be in the offing, especially since Trump’s newest deadline for reaching trade deals with partners is Aug. 1. Trump played down the odds of an EU deal on July 25, but markets still drifted upward. Trump seems to be in a dealmaking mood, and markets have stopped quaking on every downbeat utterance from Trump.
But taxes are still going up — substantially. For those lacking a scorecard to track Trump’s confusing trade war, here’s where things stand: When Trump came into office, the average tax on imports was about 2.5%. Trump has added a new “baseline” tariff of 10% to that, for most imports. For the few countries that have made deals with Trump so far, the baseline is 15% to 20%. In addition to Japan, that includes a 19% tariff on imports from Indonesia and the Philippines and a 20% tariff on Vietnamese imports.
Read more: The latest news and updates on Trump’s tariffs
There are myriad other actual or threatened tariffs on specific product sectors, such as autos, copper, steel, aluminum, and pharmaceuticals. Imports from China still face separate tariffs of 34% to 40%. There are tariffs ranging from 10% to 25% on goods from Canada and Mexico, unless they satisfy complex domestic origin requirements. Some websites have developed tariff calculators to help businesses that import goods figure this all out.
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Put it all together, and the Yale Budget Lab estimates that Trump has hiked the average tax on imports from 2.5% to about 20%. That could raise about $290 billion per year in new revenue for the federal government. But that revenue is nothing more than a tax hike on American businesses and consumers. The big tax-cut law Trump signed in early July would cut other taxes by about $375 billion per year, so Trump’s tariffs negate about three-quarters of that.
Read more: 5 ways to tariff-proof your finances
Why is Wall Street cheering? Simply put, clarity. When Trump took office, many forecasters thought Trump would raise the average tariff rate to somewhere between 10% and 15%. But Trump’s April 2 tariff announcements would have pushed the average import tax close to 30%, a much stiffer shock than most were expecting. That downside surprise led to a stock sell-off so abrupt that Trump changed his mind a week later and postponed most of those “reciprocal” tariffs.
Since then, Trump’s various deals, faux deals, and deals-to-be-named-later have brought the average tariff burden closer to what investors had priced in at the beginning of Trump’s term. Goldman Sachs, for instance, has revised its expected tariff rate up, then down, during the last several months. The firm now expects “a near term effective tariff rate that rises slightly more slowly than our prior assumption but ends the year roughly 14 percentage points higher than it started.” That’s a bumpy round trip back toward the firm’s original forecast.
The Trump White House says the US economy is “regaining its swagger.” But it’s a pretty weak strut. While US stocks have risen by about 8% so far this year, the MSCI index of global stocks, excluding the United States, is up 20%. There’s a slowdown in hiring in the United States, and many economists expect growth to weaken this year and next. Higher costs due to Trump’s tariffs are starting to dent corporate profits and tariff-induced inflation might be arriving.
Trump’s net approval rating, at around 45%, is near the low for his second term. That’s probably due more to the Jeffrey Epstein scandal than tariff pain, since Americans have heard a lot more about the tariffs than they’ve noticed in their own lives. But those tax hikes are real, and they’ll soon become more tangible. Any cheering might turn into the Bronx variety.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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