Trump Team Eyes Gradual Tariff Increases to Minimize Market Shock

Members of President-elect Donald Trump's new economic team are reportedly considering a strategy to gradually raise tariffs on a monthly basis, Bloomberg reports, citing sources familiar with the discussions. The phased approach is aimed at boosting the administration's negotiating leverage while mitigating the risk of inflation spikes.

Sources indicate one proposal under consideration involves a monthly tariff increase of approximately 2% to 5%, leveraging executive authority under the International Emergency Economic Powers Act (IEEPA).

The proposal remains in its early stages and has not yet been presented to Trump, signaling that the phased implementation plan is still under review. Key advisers involved in crafting the plan include Treasury Secretary nominee Scott Bessent, incoming National Economic Council Director Kevin Hassett, and Stephen Miran, the nominee for Chair of the Council of Economic Advisers.

Market Reactions and Global Impact

Following news of the potential phased tariff strategy, currencies like the Australian dollar and Chinese yuan, which are particularly vulnerable to trade tensions, experienced gains.

Despite efforts to limit the market impact of tariffs, global interest rates are unlikely to return to pre-pandemic lows. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), noted that tariff threats have already driven up global long-term borrowing costs. She emphasized that uncertainty surrounding the new administration's trade policies has intensified global economic headwinds, which are "manifesting in higher global long-term rates."

Georgieva highlighted the unusual combination of falling short-term rates alongside elevated long-term rates, underscoring the persistent influence of trade policy risks on the global economic landscape.