U.S. Tariffs: What is the impact and why is it hitting rubber so hard?

Incredibly, less than a week after announcing a global tariff increase, Trump already postponed the implementation of part of it.

Nevertheless, significant tariffs remain in place on automobiles, and the trade war with China is intensifying with a 145% tariff hike specifically targeting that country. China didn’t stand idly by and responded. The only thing that’s clear is that we’re headed for a highly volatile market in the coming months.

If this situation persists, it’s very likely we’ll see a sharp slowdown in growth, especially in the U.S. and China.
This implies lower demand for natural rubber, which led to the steepest weekly price drop in years.

Where do the tariffs stand now?

Let’s recap:
i) All countries now face a 10% tariff when exporting to China.
ii) Natural rubber, as a raw material, was exempt, but not its manufactured goods.
iii) Additional tariffs on countries with which the U.S. has the highest trade deficits have been temporarily suspended until July.
iv) A general 25% tariff still applies to automobiles and auto parts, as well as imports from Mexico and Canada; products covered under the USMCA trade agreement (Canada, Mexico, U.S.) are not affected.
v) For China, the effective tariff is 145%. China responded with 85% tariffs and by selling U.S. Treasury bonds to push down their price.

What happens next?

It’s impossible to know. Many governments have expressed a willingness to negotiate, and Trump appears slightly more open to that idea (even hinting at the possibility of sitting down with China).
This negotiating style seems typical of Donald Trump, although the tariff formulas he announced (based on trade deficits rather than standard rates) further complicate the situation. Plus, negotiating individually with each country would take a lot of time.
That’s why we don’t rule out a return to the same scenario by July — just like what happened with Canada and Mexico, whose temporary exemptions turned out to be exactly that: temporary.

What is the impact and why is it hitting rubber so hard?

The new trade barriers are increasing costs across much of the global value chain, leading to reduced income and inefficient allocation of resources, slowing global growth.
In the U.S., there's already a projected 50% chance of recession.

Even though it was excluded from the tariffs directly, natural rubber has seen one of the sharpest price drops (-11% in a single week).
This is due to the particularly high tariff on automobile and auto part trade, as well as the falling price of oil, a key input for synthetic rubber production.
In this case, the price collapse (from nearly USD 75 down to between USD 60 and 65 per barrel) was driven not only by tariff hikes, but also by the Organization of the Petroleum Exporting Countries’ decision to speed up production increases in May.

Finally, it’s worth noting that China will be one of the hardest-hit countries, as it is currently the main target of the U.S. trade war.
The Chinese economy had been growing at a strong pace (with the industrial sector in March posting its best performance in a year), but after these latest announcements, some ratings agencies are already revising their growth forecasts for the remainder of the year.