Tariff Tides Turning: The US Tariff Index Reveals the Road Ahead

Exploring the US Tariff Index's Latest Insights

Doug Crescenzi

Doug Crescenzi

— 5 min read
Tariff Tides Turning: The US Tariff Index Reveals the Road Ahead

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TL;DR:

Market Snapshots

Event Breakdown

Navigating the US Tariff Policy Shift: A few weeks ago we touched on tariff policy when we released our Globalization Index. The index uses prediction markets to quantify and track the extent of global interconnectedness across countries or regions, providing a comprehensive measure of how integrated they are in economic, social, cultural, political, and technological dimensions.

Today we’re doing a deeper dive into tariff policy and releasing our new "US Tariff Index” as the marked shift toward hawkish measures under the current administration continues. The index tracks the extent to which US tariff policy is trending in a more hawkish or dovish direction. If the index value increases, that implies US tariff policy is trending more hawkish. Conversely, if the index value decreases, that implies US tariff policy is trending more dovish.

The index has been trending in a hawkish direction over the last few weeks. This surge, driven by events like the April 5 universal 10% import tariff and June 12 expansion to household goods, reflects a policy leaning heavily on protectionism. Near-term markets, such as "Will Trump impose large tariffs in 2025?" at 92%, and the decreasing likelihood of a "US-EU trade agreement by July 9?" at 29%, underscore this trend, with market liquidity and volume impacting their influence.

The downward trajectory in "Which countries will the U.S. agree to trade deals with before July?"—spanning 13 markets including India, the European Union, and Japan—tells a similar story. 

Each market has dipped below 25%, suggesting a fading prospect of de-escalation through trade agreements. This decline, particularly stark for high-impact partners like India and the EU, hints at stalled negotiations. However, "US-China tariff agreement before 90 day deadline?" has been trending upward, currently sitting at 82%. 

The index’s weighting of time horizon and impact highlights these shifts, offering a real-time pulse on policy direction.

Real-world implications are profound. For businesses, the rise in average tariff rates to approximately 15%—with peaks at 125% on Chinese goods—has pushed over 30% of US firms to cite trade policy as their top concern. Manufacturing and construction sectors are diversifying supply chains, while energy markets brace for volatility. Hedge funds, meanwhile, might leverage the index for tactical asset allocation, overweighting domestic stocks or hedging FX exposure in trade-sensitive currencies like the Mexican peso and Canadian dollar as the index trends more hawkish.

Legal challenges add uncertainty, with "Will the Court Force Trump to Refund Tariffs?" at 19% and "Will Congress pass a bill limiting Trump's tariffs before July?" at <1%. These markets, though lower in probability, signal potential checks on executive action, which could pivot the index dovish if resolved favorably.

For investors, this hawkish tilt offers both risks and opportunities. An increasing index reading could prompt macro funds to favor gold or short Treasuries, anticipating inflation from higher import costs. The "U.S. tariff rate on China on August 15?" markets, ranging from less than 25% to over 150% with probabilities like 8% and 2%, provide granular insights for portfolio adjustments.

This policy shift, captured by the index’s upward trend, underscores a strategic use of tariffs to reshape trade dynamics. Yet, the low odds of trade deals and legal pushback suggest a volatile path ahead. Stakeholders— from fund managers to policymakers—can use these market signals to navigate uncertainty, though the rapid changes demand constant vigilance.

Related markets & forecasts:

Long-Tail Radar

This week’s Long-tail Radar zooms in on four intriguing US tariff markets from Limitless, offering a window into policy shifts with modest yet growing volume. "Will Trump impose large tariffs in his first 6 months?" at $16,573 volume holds steady with a 88% chance, reflecting early policy momentum. The "Will Trump remove 10% blanket tariff before July?" market, with $4,653 volume, has fallen to 2%, signaling low odds of near-term relief following the April 5 tariff rollout. 

"How much revenue will the U.S. raise from tariffs in 2025?" at $6,053 volume leans toward $100-200B, hinting at significant fiscal impact. 

Meanwhile, "U.S. tariff rate on China on August 15?" with $13,354 volume trends toward 25-40%, aligning with Polymarket’s higher-volume ($1M+) market, suggesting a consensus on moderate escalation.

These markets captivate due to their niche focus and evolving liquidity, providing granular insights into tariff policy’s trajectory. The convergence of Limitless and Polymarket data on China tariffs underscores prediction markets’ potential to aggregate diverse signals, even with varying volumes. This alignment hints at a maturing ecosystem driven by real-time policy developments.

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