Those Incredible Shrinking Tariffs (Updated)

The Credit Strategist Blog

President Trump’s proposed tariffs may not be shrinking as much as I initially thought. Late in the evening on April 11th (Friday night), the President exempted a host of tech products from his reciprocal tariffs. Among the exemptions were smart phones, computers, semiconductors, solar cells, flat panel TV displays, flash drives, and memory cards and solid state drives used for storing data. While not quite exceptions that swallow the rule, they were very, very large. This was potentially great news for AAPL, DELL, NVDA and other tech companies whose stocks were battered by Trump’s initial tariff announcement on Liberation Day and still under pressure after those tariffs were paused for 90 days.

However, Commerce Secretary Howard Lutnick and Director of the National Economic Council Kevin Hassett clarified this morning (April 13th) that these tariff exemptions are only temporary and that these products will be subject to tariffs in a “month or two.” Lutnick told John Karl on ABC’s This Week:

“All those products are going to come under semiconductors, and they’re going to have a special focus type of tariff to make sure that those products get reshored. We need to have semiconductors, we need to have chips, we need to have flat panels - we need to have these things made in America. We can’t be reliant on Southeast Asia for all of the things that operate for us.”

So AAPL, DELL, NVDA, etc. are not off the hook. They may still be facing higher tariffs in a few weeks. Before these “clarifications,” I wrote that “[t]hese stocks will likely rally strongly next week on news of these exemptions which will render their valuations stretched once again.” I may have spoken too soon (an occupational hazard trying to analyze events in real time). There may well be a relief rally but investors should be extremely cautious about piling back into to tech stocks based on the possibility that tech products may well end up subject to high tariffs. We won’t know for several months what the final tariffs will look like - and neither will the administration.

It’s also difficult to see the possibility (or likelihood) of higher semiconductor tariffs will calm the concerns of the bond market. Unless constructive news emerges very quickly regarding tariff deals, the bond market will likely remain under pressure. We may see stocks stabilize or even rally on the exemption news next week but it will be hard to place too much weight on the exemption news until we know precisely what it means. Right now we know nothing of the kind.