28 March 2025
Auto Tariffs Set Stage for 2 April Levies
A review of the week’s top global economic and capital markets news.
AUTHOR
Jamie Coleman
Senior Strategist, Strategy and Insights Group
For the week ending 28 March 2025
As of midday Friday, global equities were lower on the week as investors waited to hear the particulars of US reciprocal tariffs next Wednesday. Markets firmed early in the week on hopes that the upcoming tariffs would be lower than feared. However, the rally was erased when US President Donald Trump announced that sweeping auto tariffs would take effect next week. The yield on the US 10-year Treasury note rose to 4.27% from 4.21% a week ago while the price of a barrel of West Texas Intermediate crude oil gained $1.50, to $69.20. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 20.0 from 19.2 a week ago.
MACRO NEWS
Trump imposes 25% duties on US auto imports
On Wednesday, US President Donald Trump imposed 25% duties on imported light vehicles, including those assembled in Mexico and Canada, effective April 3. Key auto components will face duties no later than May 3. According to the White House, there will be limited, temporary carveouts for the US content in vehicles assembled in Mexico and Canada. Trump described the tariffs as permanent and said they are designed to drive the reindustrialization of the United States. The levies are expected to significantly disrupt supply chains for the Big Three US automakers and hurt profitability industrywide. While automakers are expected to absorb a portion of the tariff, prices will likely rise, pushing used car prices higher as a result. Trump reportedly warned US automakers not to raise prices in response to the tariffs. The administration will unveil reciprocal tariffs against all nations on April 2, but Trump said Wednesday the levies will be “very lenient.” Trump also announced that the US will impose 25% tariffs on exports from countries that purchase oil and natural gas from Venezuela.
Uncertainty surrounds Ukraine War ceasefires
Negotiators from the US and Russia reportedly agreed Tuesday that Ukraine and Russia will halt strikes on each other’s energy infrastructure. Additionally, the US said it had reached a tentative agreement with Ukraine and Russia to stop fighting and ensure safe navigation in the Black Sea. Following the announcements, there were conflicting statements from the two sides over the timing and details of the two accords. Russia said it will agree to the ceasefire only if sanctions on its agricultural sector and one of Russia’s key banks are lifted. And Ukrainian President Volodymyr Zelensky, after a summit of European leaders in Paris on Thursday, said there are many questions and few answers regarding the possible deployment of European troops to Ukraine as part of an agreement to halt the war with Russia.
Moody’s warns on US fiscal outlook
Trade tariffs could hamper the US’ ability to cope with its growing debt and higher interest rates, credit rating agency Moody’s said this week. The country’s “fiscal strength is on course for a continued multiyear decline,” having already “deteriorated further” since the agency assigned a negative outlook to the country’s Aaa credit rating in November 2023. While Moody’s highlighted the extraordinary economic resilience of the US and the roles of the dollar and the Treasury market as backbones of the global financial system, its analysts warned that tariffs and planned tax cuts could do more harm than good for government revenues.
QUICK HITS
Despite heightened economic uncertainty, purchasing managers’ indices mostly gained ground in March, according to S&P Global.
Core PCE, the US Federal Reserve’s preferred inflation measure, rose 0.4% month over month in February, exceeding forecasts. Personal spending came in lower than expected, rising 0.4% from the prior month.
Trump said Wednesday he would consider giving China a tariff reduction in exchange for a deal on the US operations of TikTok.
Bloomberg reported Friday that the European Commission is working on a “term sheet” for a potential agreement with the US which would set out areas for negotiations on punitive trade measures, including lowering EU duties, mutual investments with the US and easing certain regulations and standards.
Ahead of the 2 April US imposition of broad reciprocal tariffs, India has been lowering tariffs on a range of goods to circumvent the levies. India’s average tariff rate as of 2023 was 17% compared with the 3.3% rate in the US.
US Q4 GDP was revised up to a 2.4% annual rate from 2.3% while personal consumption was revised down to a 4% annual growth rate from 4.2%. US corporate profits increased $204.7 billion in the fourth quarter in contrast to a decrease of $15 billion in the third quarter.
Amid heightened economic uncertainty, Bank of England Governor Andrew Bailey said consumption in the United Kingdom isn’t rising despite gains in real income. Additionally, businesses are delaying investment. Britain must raise its growth potential, he said.
Elon Musk said Thursday that aims to slash US government spending by $1 trillion by the end of May.
The Case-Shiller national home price index rose 4.1% from a year ago in January. New home sales rose 1.8% in February from the month before while pending home sales increased 2%.
Stephen Miran, the head of the White House Council of Economic Advisers, said this week that Trump is not focused on a Mar-a-Lago currency accord but instead on fair and reciprocal tariffs. Miran emphasized that there is an ongoing shift from a government spending–led US growth model to one driven by the private sector.
German business optimism rose to the highest level since June 2024 as chancellor-in-waiting Friedrich Merz prepares to spend hundreds of billions of euros to modernize the economy. The Ifo Expectations Index rose to 87.7 in March from 85.6 in February.
In a preelection budget, Australia's government announced an unexpected tax cut and an extension of energy rebates. On Friday, Prime Minister Anthony Albanese called a national election for 3 May.
Consumer confidence fell to its lowest level since early 2021 in March, according to the Conference Board. Its index fell to 92.9 from 98.3 in February.
The US Congressional Budget Office estimates that if the debt limit remains unchanged, the government’s ability to borrow using "extraordinary measures" will probably be exhausted in August or September. Senate Majority Leader John Thune said this week that he hopes to include lifting the debt ceiling in the upcoming budget reconciliation bill.
US durable goods orders rose 0.9% in February, but nondefense capital goods orders ex aircraft declined 0.3%.
UK CPI rose 2.8% year over year in February, coming in below expectations for a 3% rise. Core inflation rose 3.5%, down from 3.7% the month before.
According to the Financial Times, Beijing has introduced energy efficiency rules for advanced chips that would prevent Chinese companies from importing Nvidia chips eligible for export to China.
Minutes of the recent meeting of the Bank of Canada showed that the monetary policy committee would have left rates unchanged if not for the economic uncertainty surrounding US tariffs.
THE WEEK AHEAD
Monday: German final Q4 GDP
Tuesday: Global manufacturing PMIs, eurozone preliminary March CPI and unemployment rate, US JOLTS
Wednesday: Trump administration releases reciprocal tariff details
Thursday: Global services and composite PMIs
Friday: US employment report
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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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