Most retail executives expect Trump to walk back 'reciprocal' tariffs, survey finds

A recent AlixPartners survey of retail executives indicates growing optimism that President Trump will maintain tariffs on imports from the EU, Vietnam, India, and Mexico at 10%, rather than implementing previously proposed higher rates. This shift in sentiment follows trade negotiations with China and a U.S. court ruling challenging the initial tariffs, aligning with the "TACO trade" theory that Trump often reduces tariffs after initial announcements; however, analysts caution that these other countries may not have the leverage China has to negotiate similar deals.

Analysis

A recent AlixPartners survey conducted on June 1 reveals a growing optimism among retail executives regarding U.S. trade policy, with most respondents now expecting President Trump to maintain tariffs on imports from the European Union, Vietnam, India, and Mexico at a 10% level, rather than imposing substantially higher 'reciprocal' duties previously announced. This shift in sentiment is attributed to ongoing trade negotiations, including a preliminary deal with China that saw tariffs reduced from 145% to 30%, and a U.S. Court of International Trade ruling (currently on hold pending appeal) that questioned the administration's authority to impose the steeper April 2 tariffs. Specifically, 53% of retail executives anticipate tariffs on goods from Vietnam, a key manufacturing hub for companies like Nike, will stabilize at 10% instead of a feared 46% levy. Similarly, 46% expect tariffs on Indian imports to remain at 10%, compared to a proposed 26%. This outlook aligns with the 'TACO trade' theory, which posits that the administration tends to announce aggressive tariffs and subsequently moderate them. However, AlixPartners cautions that this optimism may be premature, as other countries may lack the negotiating leverage of China. Underscoring this uncertainty, 29% of respondents are preparing for scenarios where duties on Indian imports could either remain at 10% or increase, indicating that prudent companies are planning for multiple outcomes.

Key Decisions for Investors

• Investors should closely monitor the progression of trade negotiations involving the EU, Vietnam, India, and Mexico, as tariff outcomes will directly impact import costs and margins for retailers and consumer goods companies.
• Particular attention should be paid to companies with significant sourcing from Vietnam, such as Nike, as the prevailing 10% tariff expectation versus a potential 46% represents a substantial earnings risk or relief.
• Given the expert caution that optimism may be premature and that countries outside of China possess less negotiating leverage, investors should assess whether companies in their portfolios are adequately prepared for scenarios where tariffs might exceed the currently anticipated 10% level.
• The 'TACO trade' pattern provides a potential framework for market expectations, but reliance on this pattern should be tempered by the unique dynamics of each bilateral negotiation; thus, positions should be managed with an awareness of this ongoing uncertainty.