Universal Tariff Promise Knocks Euro-Dollar

Above: File image of Scott Bessent.

The Dollar has risen after the U.S. indicated it was proceeding with universal tariffs.

Donald Trump's Treasury Secretary Scott Bessent says the U.S. is ready to impose universal tariffs on U.S. imports, starting the rate at 2.5%.

The FT reports the plan is to ratchet up the import tax by 2.5% each month, giving businesses time to adjust and countries the chance to negotiate with the U.S. president’s administration.

The tariff could go as high as 20%.

Speaking to reporters on Monday, Trump confirmed his desire for universal tariffs, saying he wants them "much bigger than 2.5%".

The universal tariff is considered inflationary for the U.S. as it pushes up the cost of imported goods, raising the prospect of higher interest rates at the Federal Reserve for a longer period.

For this reason, analysts say it is a pro-USD policy. Following the news, the Euro to Dollar exchange rate (EURUSD) is half a per cent lower on the day at 1.0433, potentially bringing an end to a shallow rebound.

The Euro, Pound and other currencies had recovered against the U.S. Dollar amidst signs Trump had abandoned the universal tariff idea, something he threatened during his election campaign.

It is the fear of this blanket tariff that saw the Dollar surge following his win in November.

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But Trump's first week in office saw him seemingly walk away from this stance, instead preferring to leverage tariffs on a case-by-case basis.

However, Bessent's comments suggest the administration still fully intends to pursue the universal tariff and potentially draw a line under recent USD weakness.

"The strong dollar narrative remains unchanged. We continue to look through all this tariff noise and believe that whatever final tariff plan eventually emerges, it will only magnify the current drivers of the ongoing dollar rally," says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman.

Trump has long believed in using tariffs to realign the global trade order in favour of America. He believes that the tax will help bring manufacturing back to the U.S. from global factories that have previously enjoyed cost advantages.

There is a certain attraction in pursuing a universal tariff, as U.S. officials believe they would help counter efforts to reroute Chinese manufactured goods through third-party countries. For example, Vietnam proved to be a beneficiary of tariffs imposed during Trump's first term in office.

The obvious negative side effect for the President would be a rise in the cost Americans pay for those goods.

Trump believes he can mitigate some of the impacts by distributing the proceeds of the tariff take.

For global manufacturers, particularly those in the Eurozone, the tariff poses a significant headwind and currency analysts think this makes the Euro particularly vulnerable.