US Treasury Secretary, Scott Bessent, stated on CNN News that President Donald Trump has warned trade partners about negotiations reverting to previous levels if not conducted in good faith. There are 18 upcoming deals with key trading partners, though no specific timeline was provided.

Currently, the US Dollar Index (DXY) has decreased by 0.32%, now around 100.75. Tariffs function as customs duties on imports, giving local manufacturers a competitive edge over similar imported products. They are common tools of protectionism, alongside trade barriers and import quotas.

While tariffs and taxes both generate government revenue, they differ fundamentally. Tariffs are paid at import ports, and taxes at the point of purchase. Taxes apply to individuals and businesses, while tariffs are the responsibility of importers.

Divergent Views on Tariffs

There are divergent views among economists on tariffs’ usage. Some advocate for them to protect domestic markets and address trade imbalances, yet others warn they could escalate prices and instigate trade wars. During the presidential campaign for 2024, Trump intends to levy tariffs on Mexico, China, and Canada, which collectively represented 42% of US imports in 2024. Revenue from these tariffs is planned to reduce personal income taxes.

Bessent’s appearance on CNN, while framed in diplomatic language, underscored a strategy that hinges more on pressure than partnership. The message was direct—should any of the impending 18 trade agreements be approached without sincerity, pre-existing terms may simply be reinstated, effectively rolling back negotiations. That places every party on notice: outcomes won’t just be shaped by economic metrics, but also by diplomacy—or the lack of it.

From our standpoint, this is hardly abstract rhetoric. This sort of message directly impacts the currency markets, as we’ve seen with the US Dollar Index dipping 0.32% to 100.75. When political risk increases, the dollar often reflects that increased uncertainty—particularly when policy leans toward protectionism. Movement like this, even if modest, can interrupt models based on stable or appreciating dollar flows.

Now, stepping back to tariffs. Though they’ve existed as tools of trade policy for decades, their implementation today carries far broader implications. At their core, tariffs act as price increases on imports, which in theory makes local alternatives more appealing to buyers. Ideally, this should bolster domestic production. But that textbook outcome clashes with real global supply chains—where few industries function in a purely national ecosystem.

The distinction between tariffs and taxes, while technical, is non-trivial. Tariffs are imposed at national borders and paid by importers, whereas taxes hit end consumers and businesses internally. That means costs introduced by tariffs usually show up upstream in the production process, potentially trickling down to consumers later. What’s different now is that tariffs are being repackaged—as a generator of state funds aimed at offsetting personal income tax, which would normally depend on general economic activity.

Repercussions of Proposed Tariffs

With Trump’s campaign floating the idea of blanket tariffs on imports from Mexico, Canada, and China—countries that made up nearly half of US imports in 2024—those cost implications expand. That’s not just hypothetical. Importers must either accept lower margins or pass those costs along. We can reasonably expect this to ripple outward, particularly for sectors reliant on inputs from these countries, such as electronics, automotive, and agriculture.

There’s no mystery as to why views differ among economists. Some see value in shielding weaker domestic sectors from international competition, particularly those seen as strategically vital. Others argue this serves only to distort prices and provoke retaliation—moves that in the past have throttled trade flows and pressured global GDP. They may look at precedence from post-2008 or earlier historical periods when tit-for-tat measures reduced global volume instead of spurring growth.

From where we’re sitting, these are not passive events. They shape hedging strategies, trading spreads, and even volatility assumptions. With that in mind, currency and rate derivatives traders need to recalibrate for an administration that seems intent on excising leverage from its counterparts during negotiation rounds.

It’s worth noting too that while no dates have been attached to the 18 deals mentioned by Bessent, preparation windows for repricing exposures are extremely narrow once announcements start. Positioning based on historical trade relationships could become dated quickly if disagreements surface. For now, the messaging from Washington implies that predictability is not the goal. Instead, flexibility and pressure seem to be the preferred tools.

If these policy outlines mature into formal mechanisms—particularly the use of tariff proceeds to offset income taxes—we could find ourselves operating within a model not seen since the early 20th century: trade duties funding domestic relief. That introduces a structural shift to watch closely across multilateral trading systems, especially for participants whose models have assumed relatively stable taxation mechanisms and relatively open import channels.

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