Analyst: Reduction in China Tariffs, Consumer Goods Tariff Exemptions Coming
A prominent political risk advisory firm says that peak tariff disruption is over, and that 2026 will bring some tariff reductions, but also continued uncertainty in several trade areas.
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Eurasia Group, led by Ian Bremmer, said that domestic politics and the China truce will constrain Trump. "Trump will focus on boosting his sagging numbers on the economy and affordability, leaving less room for tariffs that drive up prices -- especially as retailers deplete their pre-“Liberation Day” stockpiles and shift more tariff costs onto consumers. He’s already backed off levies on certain food imports from several Latin American countries. Expect more pullbacks on low-cost consumer goods this year," the group's annual risk forecast said.
The group predicted that deals with India, Indonesia and Brazil will be rolled out this year. "The Supreme Court may strike down some tariffs imposed under the International Emergency Economic Powers Act. The administration has other tools -- Section 122, Section 301 -- to reconstruct much of the tariff wall, though average effective rates will dip slightly in that case. But the chaos from last April won’t return. Trump will still brandish threats for leverage, but the shock-and-awe phase is over."
Local experts also have predicted more tariff rollbacks due to domestic politics, and like Bremmer, predict that the U.S. will be careful not to upend the China trade truce (see 2511260011).
The report said, "Both sides learned from last year’s tariff war that they faced a lose-lose proposition: empty shelves in the United States, unemployment in China. Neither wants a repeat."
It said that China has leverage in rare earths, and the U.S. has leverage with its jet engines and chips.
Because Trump is transactional, the report predicted, the U.S. will pause key export controls.
"Progress on fentanyl cooperation should bring that tariff to zero," the report predicted.
However, the report did point to a number of business risks. It said USMCA will be in limbo in 2026 -- the U.S. will not agree to renew it for 16 years, but is also unlikely to tear it up.
"USMCA won’t be extended, updated, or killed. It will stagger on as a zombie, keeping businesses and governments guessing while President Donald Trump continues negotiations with America’s two largest trading partners," the report said.
That's already true to a large degree, since autos, steel, aluminum, lumber, heavy-duty trucks and buses are all already carved out from duty-free treatment, even when they meet rules of origin for the pact. Auto parts have continued to receive duty-free treatment when they meet rules of origin, however.
"Canada and Mexico will still face lower effective tariff rates than most of the world. But preferential treatment won’t make navigating North American trade any easier this year; the days of free and predictable North American trade are over," the report said. "Sectoral tariffs designed to reshore production will develop constituencies that benefit from and lobby for them. For firms trying to plan beyond the next quarter, 2026 will be a year of renegotiating contracts, hedging bets, and delayed investments. That’s the cost of doing business when the rules keep changing."
While the report noted that Canadian and Mexican producers are dependent on the U.S. market, Bremmer predicted Canada's government won't be in a hurry to reach an agreement, hoping that the midterms and cost-of-living politics will cause Trump to moderate on tariffs.
"That calculation sets up a rough ride for Canada and Carney in 2026. Trump apparently likes Carney personally but doesn’t like Canada’s tough, detail-oriented approach to negotiations -- or Canadian retaliatory tariffs and consumer boycotts. Canada isn’t willing to make the concessions on market access or military purchases that would give Trump an obvious win, and Trump isn’t willing to back down," the report said.
More broadly, the report said that even if tariffs are harder to use in 2026, the Trump administration's interest in intervening in business will not, and Bremmer predicted that there will be more equity stakes, revenue-sharing agreements and tariff exemptions based on access to the president's inner circle.
The report said the pattern is unlikely to end in 2029.
"America’s traditional edge over autocracies -- predictability, property rights, rule-based governance -- will shrink. Corporate planning becomes harder when the rules of the game depend on presidential discretion. The precedent will stick. Once one administration uses these tools -- equity stakes, golden shares, revenue sharing -- in the name of national security or reshoring, the next administration will use them too. The mechanisms Trump is normalizing could just as easily be deployed by a Democratic administration for climate policy, labor-friendly industrial renewal, or social equity. It’s a bipartisan ratchet, and a self-sustaining one: The system will create vested interests and patronage networks that resist dismantling."