As we move through May, tariffs remain prominently in the headlines. But, where shock replaced uncertainty on April 2nd (and the days and weeks that followed), we may now be getting more clarity on the direction of travel and the ultimate landing spot for tariff rates in the near-term.

We have recently seen two significant developments regarding tariff policy. The first was announcing a trade deal with the United Kingdom (UK), and the second was announcing a 90-day de-escalation period with China on May 12th.

UK Tariff Deal

Specific to trade between the UK and US, there are two dynamics worth flagging up front. First, the US runs a trade surplus with the UK. Second, imports from the UK represent roughly 2% of total US imports, so we are talking about a relatively small import partner. Regarding the deal itself, plenty of details remain to be hashed out, but the key takeaway is that the 10% baseline tariff has been left in place. Keep in mind that this is for a country that should be considered a strong ally, and with which we run a trade surplus.

China Tariff Deal

The US has agreed to roll back the most aggressive actions post-liberation day, taking the effective tariff rate from 145% to around 40%. For their part, China will reduce its tariff rate on American goods to 10%. While this is, for now, only a 90-day pause, it’s clear that both sides saw the escalated rates as far too punitive to leave in place for any prolonged period. It’s very possible we have seen peak rates between the two countries.

Overall Tariff Policy

In thinking about both announcements above, it’s fair to say that tariff policy may continue to be disruptive, potentially inflationary, and likely to hit demand at least in the interim (and potentially on a longer timeframe). We’re also likely to see concerns ebb and flow—nothing will move in a straight line.

However, it would also seem increasingly clear that the 10% rate is more or less the floor, with some countries likely facing far higher rates (China is the obvious example). The real question now is whether or not markets will be willing to look through nearer-term economic weakness and find optimism in the fact that a worst-case scenario looks off the table. From an economic perspective, the question is whether businesses have enough certainty to feel comfortable planning for the future, as this will impact decisions such as hiring, firing, and investment.

We should expect that tariff policy will remain uncertain, and progress may be intermittent, creating volatility in financial markets and having real economic consequences. Yet, as an active manager, periods of volatility can create opportunity. Our time-tested investment strategies and valuation disciplines give our team a strong foundation upon which to approach periods of volatility confidently.

This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.