【True Insight Hong Kong Stock Experts】The Longest State of the Union Address in History, US Tariff Issues Continue to Disturb the Market

This week, U.S. President Donald Trump delivered the longest State of the Union address in American history. In his speech, he called the Supreme Court's ruling "regrettable," claimed that these tariffs were the main driver of U.S. economic strength over the past year, and stated that these tariffs would continue to be implemented through alternative laws and regulations, without requiring congressional action.

He also stated that the trade agreements his administration negotiated with major global economies remain valid, and claimed that new agreements would be "even more unfavorable" for them.

In his address, Trump discussed various topics, including immigration, trade, U.S. economic strength, and his administration's efforts to reduce the cost of living. He reiterated his claim that he has prevented eight wars since taking office and discussed negotiations with Iran.

He also stated that the recent strong performance of the stock market was driven by his trade tariffs.

Following the U.S. Supreme Court's ruling last week that some tariff measures were illegal, the U.S. government quickly rebuilt the tariff system. This Tuesday, importers began applying a 10% global unified tariff rate, a level lower than the 15% President Trump threatened to raise it to over the weekend.

Trump is currently imposing a 10% tariff under Section 122 of the Trade Act of 1974 and has signed an executive order to implement it. It is important to note that Section 122 tariffs can only be maintained for a maximum of 150 days. The government stated that it is preparing to take more permanent tariff measures under Section 301 of the Trade Act of 1974 after completing investigations and public consultations. This arrangement has created new uncertainty, especially for countries that have already reached trade agreements with the United States.

In the short term, most trading partners are expected to remain inactive. The industry believes that what will truly bring countries to the negotiating table is not the tariffs already implemented, but the threat of potentially significant future increases.

If tariffs remain at 10%, annualized U.S. tariff revenue will decrease by approximately $140 billion; if raised to 15%, revenue will decrease by about $70 billion. At a 10% rate, several countries, including Brazil and India, will receive short-term tariff relief. Section 122 appears more like a measure to buy time for subsequent taxation under Section 301; meanwhile, the government may supplement it with industry-specific tariffs under Section 232 to compensate for the tariff revenue originally brought by IEEPA. However, the Section 301 process has never been completed within five months, which may keep the government maintaining a tariff "transition bridge" for months before the midterm elections, by which time the cost of living will be a focus for voters.

Even with temporarily lower rates, the government will continue to use tariff tools. This means that companies that previously chose to absorb tariff costs themselves may instead pass them on to consumers. Companies may increase their bargaining power with overseas suppliers and more actively adjust their supply chain layouts.

From a market expectation perspective, institutions generally expect tariff levels to decline this year. With Trump's tariff authority constrained, the overall effective tariff rate this year is expected to drop to the 10% to 15% range, which will marginally improve U.S. household spending power and alleviate inflation concerns.

Written by: Professor Li Huifen, Greater Bay Area Family Office Association

(I do not hold the above stocks)