US – Updating Tariff Assumptions

With the Trump administration re-escalating trade tensions in recent weeks, we have revised up our average effective tariff rate forecast from 15.2% to 19.5%. The upside revision can be attributed to new assumptions on Section 232 tariffs as well as country-specific reciprocal tariffs.

For products that are now under Section 232 investigations, we expect 50% tariffs on copper and 25% tariffs on all other goods, including pharmaceuticals, with the possibility of certain countries being exempt. These changes to Section 232 tariff assumptions account for an increase of 3.3pp in our expected effective tariff rate.

Upward surprises to country-specific reciprocal tariff rates are an additional driver of our upside revision. Recently, Trump announced agreements with Vietnam, Indonesia, the Philippines, Japan and the EU, setting new country-specific reciprocal tariff rates on those countries at 15-20%, up from the 10% we had initially expected. Based on those trade agreements, as well as the recent announcements of 25% or higher tariffs on Korea, Thailand, Malaysia and Brazil starting in August, we expect that reciprocal tariffs of 20％ will be the new baseline, up from the current 10%. We now forecast that, on average, country-specific reciprocal tariffs against targeted countries to which Trump sent his letters on proposed tariff rates (excluding Mexico, Canada, and China) will rise to 20% from the current 10%.

Although we raised our assumptions on Section 232 tariffs and reciprocal tariffs, there are some factors partially offsetting the tariff increase: wider-than-expected tariff exemptions for Mexico and Canada and the effect of a substitution in imports toward lower tariff countries.

On the latter, a sharp decline in the share of imports from China has pushed down the average effective tariff rate. Goods from China accounted for 13.4% of total US goods imports in 2024, but its share plummeted to 7.2% in May 2025. Inclusive of tariffs preceding the second Trump administration, the country-specific effective tariff rate against China rose to 47.8% in May, the highest among major US trading partners.

It is worth noting that there are also risks to our tariff expectations. If the Trump administration adjusts Mexico and Canada tariff exemptions, or the next USMCA review in 2026 leads to significant changes to the qualifications for USMCA-duty free treatments, the average effective tariff rate could rise even further. On the other hand, the Trump administration could postpone a scheduled increase in reciprocal tariffs or narrow the scope of Section 232 product-specific tariffs relative to our expectation, which poses a downside risk to our expectation for the average effective tariff rate.

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