June 21, 2025

As we approach the Trump administration’s self-imposed 90-day deadline for trade deals, markets are starting to speculate about what comes next. The longer uncertainty remains elevated, the more negative its impact on the economy, as shown in the chart below.

Maybe the strategy is to maintain 30% tariffs on China and 10% tariffs on all other countries and then give all countries 12 months to lower non-tariff barriers and open up their economies to trade.

Extending the deadline one year would give countries and US domestic businesses time to adjust to the new world with permanently higher tariffs, and it would also result in an immediate decline in uncertainty, which would be positive for business planning, employment, and financial markets.

This would seem like a victory for the world and yet would produce $400 billion of annual revenue for US taxpayers. Trade partners will be happy with only 10% tariffs and US tax revenue will go up. Maybe the administration has outsmarted all of us.

Note: Impulse response from the VAR model with variables log (Real GDP) and log (Economic Policy Uncertainty Index). One standard deviation shock to Economic policy uncertainty leads to a 0.2% point decline in Real GDP. Temporary shock is defined as four standard deviation shock in Q1 and permanent shock is defined as four standard deviation in Q1, three standard deviation in Q2, two standard deviation in Q3 and one standard deviation in Q4. Sources: Bloomberg, Apollo Chief Economist

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