This Week in Tariffs: Week 2, 2025

Week 2 (January 6-12, 2025) brought moderate tariff policy activity, with the USTR's Section 301 exclusion deadline extension dominating trader attention. US-China ETR markets moved up 7% as probability mass shifted toward the 25-30% bucket following signals that additional tariffs may be under consideration for technology sectors. Meanwhile, December import data revealed a 34% month-over-month surge in steel imports through the Port of Los Angeles, suggesting importers are front-running anticipated Section 232 tariff expansions.

Policy Developments

Major Announcements

• January 7: USTR announced 60-day extension of Section 301 exclusion petition deadline from February 1 to April 1, 2025. The extension applies to HTS codes 8471-8543 (electronics and machinery). Impact: Short-term relief for importers, but prolonged uncertainty pushes expected decision timeline into Q2 2025. Section 301 tariffs explained here.

• January 9: White House economic advisor confirmed "active discussions" on expanding Section 232 national security tariffs beyond steel and aluminum to include copper and rare earth elements. No timeline provided. Impact: Copper import markets immediately priced 18% probability of new tariffs by June 2025 (up from 8% week prior).

• January 10: Congressional Progressive Caucus introduced H.R. 412, "Tariff Transparency Act," requiring quarterly public reporting of tariff revenue, exemption requests granted/denied, and estimated consumer price impacts. Bill has 23 cosponsors (21 Democrats, 2 Republicans). Unlikely to pass in current Congress, but signals growing legislative interest in tariff oversight.

Regulatory Updates

• Exclusion Deadline: The January 7 USTR extension moves 1,847 pending exclusion petitions into April review cycle. Based on historical approval rates, we estimate 40-45% will be granted (primarily for products with "no domestic substitutes available"). Companies should file supporting economic analysis by February 15 to maximize approval probability.

• HTS Classification: Customs and Border Protection issued ruling HQ H318764 reclassifying certain lithium-ion battery packs from HTS 8507.60 (15% Section 301 duty) to 8506.50 (25% duty). Affects approximately $180 million in annual imports. Ruling effective for entries made after January 15.

International Responses

• EU Retaliation: European Commission announced preliminary countermeasures list targeting $2.8 billion in US exports if Section 232 steel/aluminum tariffs are not removed by March 1, 2025. List includes Kentucky bourbon (25% duty), Harley-Davidson motorcycles (40%), and agricultural products. Formal implementation requires member state approval, expected by January 31.

• China Trade Talks: No high-level bilateral meetings scheduled for January. Vice Premier Liu He confirmed in January 11 statement that China will "not make concessions under pressure" regarding technology transfer commitments from Phase One Deal. Markets interpreted this as reducing probability of near-term tariff rollbacks.

Market Movements

Prediction Market Highlights

China ETR Contracts (January 2025 settlement):

• 20-25% bucket: $0.61 → $0.54 (-11%)
• 25-30% bucket: $0.28 → $0.35 (+25%)
• >30% bucket: $0.06 → $0.09 (+50%)

Implied effective tariff rate: 23.8% (up from 22.9% previous week). The 7% increase in expected ETR reflects growing market consensus that additional technology sector tariffs are more likely than rollbacks in Q1 2025.

Most traded contract: China 25-30% for June 2025 settlement saw $4.2 million in volume, indicating traders are positioning for escalation risk beyond current tariff levels.

Commodity Signals

Steel Import Surge: December data (released January 8) showed US steel imports reached 3.1 million metric tons, up 34% from November and the highest monthly total since March 2020. Port of Shanghai departures to US destinations increased 28% month-over-month. This front-running behavior typically precedes tariff announcements by 45-60 days, suggesting importers expect new restrictions by mid-February.

Agricultural Trade: Soybean exports to China fell 12% year-over-year in December despite Phase One Deal purchase commitments. China filled gap with Brazilian imports (up 31%). Futures markets show minimal expectation of Phase Two Deal progress that would boost ag purchases.

Container Shipping: Trans-Pacific spot rates via Port of Los Angeles averaged $3,420/FEU (down 3% week-over-week) as Lunar New Year factory closures reduced Asia-origin volume. No tariff-related routing changes observed.

Forward Curve Shifts

The US-China ETR term structure steepened significantly: 3-month contracts priced 1.8 percentage points lower than 12-month contracts (up from 0.9 pp last week). This backwardation signals markets expect escalation risk to increase through 2025, with Q4 2025 tariff rates potentially exceeding current levels by 3-5 percentage points.

Implied volatility (measured via our Tariff Uncertainty Index) rose to 16.2 (from 14.1), reflecting increased dispersion in market forecasts following copper tariff speculation.

What Traders Are Watching

Next Week's Key Events

• January 15: US Census Bureau releases December full-year trade deficit data. Consensus forecast: $945 billion deficit (record high). Larger-than-expected deficit could trigger presidential statements on "need for stronger trade enforcement," potentially moving tariff odds.

• January 16-17: World Economic Forum (Davos). USTR Katherine Tai scheduled to speak January 17 on "Trade Policy in a Fractured World." Any comments on Section 301 reviews or China negotiations will be closely parsed.

• January 18: House Ways & Means Trade Subcommittee hearing on "Section 232 Effectiveness and Economic Impact." Industry witnesses include US Steel, National Foreign Trade Council, and Manufacturing Alliance. Congressional skepticism could influence administration timing on copper tariff expansion.

Open Questions

Will USTR grant broad Section 301 exclusions or narrow? Historical precedent suggests narrow (only products with zero domestic production). But political pressure from retail and tech sectors has intensified. Market-implied probability: 35% for broad exclusions (>50% of petitions granted), 65% for narrow (<30% granted).

Is copper tariff speculation real or trial balloon? No formal Section 232 investigation announced yet. Administration used similar "active discussions" language for aluminum in August 2024 without following through. Markets currently pricing 18% probability, but this could be overreaction to speculative comments.

Phase One Deal expiration impact? Original December 2021 expiration passed without replacement agreement. Some provisions (IP enforcement, financial services access) remain in effect, but $200 billion purchase commitment is defunct. Does this free China to reduce US ag imports further, which could trigger retaliatory tariffs? Markets show minimal concern (6% probability of new ag tariffs by June 2025), perhaps underestimating political pressure from farm states.

Positioning Implications

Short-term (1-3 months): Steel and copper importers should consider accelerating Q2-Q3 shipments to pre-hedge against potential Section 232 expansions. If copper tariffs are announced, implementation typically follows 60-90 days (based on steel/aluminum precedent).

Medium-term (3-6 months): Electronics sector remains in holding pattern until April USTR exclusion decisions. Companies with >$10 million annual China exposure should have positioned hedges by now (see tariff hedging guide). If unhedged, consider selling 25-30% ETR buckets and buying 20-25% (cost: approx $0.09 spread) as downside protection.

Calendar spreads: The steep forward curve presents opportunities. If you believe current tariffs persist without escalation, sell Dec 2025 contracts (priced at 25.7% implied ETR) and buy Mar 2025 (23.9% implied ETR). This 1.8 pp spread costs approximately $0.14 and profits if term structure flattens.

Cross-country: China vs Mexico ETR spread narrowed to 16.2 pp (from 17.8 pp) as Mexico nearshoring benefits from persistent China tariff expectations. Long Mexico ETR / Short China ETR remains a structural trade for supply chain diversification themes.

Deep Dive: Steel Import Front-Running Mechanics

The 34% December steel import surge warrants deeper analysis because it provides a real-time case study in how market participants anticipate and react to tariff policy uncertainty—even in the absence of official announcements.

The Pattern: Month-over-month import spikes >20% have preceded 11 of the past 13 major tariff actions since 2018. The mechanism: Importers with advance intelligence (trade association warnings, DC policy insider signals, supply chain chatter) accelerate shipments to lock in current duty rates. This front-running typically occurs 45-60 days before formal announcements, as that's the window when informal deliberations leak but haven't yet reached presidential decision stage.

December's Specifics: The surge concentrated in semi-finished steel products (HTS 7207.11, 7207.12) originating from South Korea and Japan—countries currently exempt from Section 232 tariffs but rumored to be under review for exemption removal. This geographic concentration suggests the front-running reflects specific policy intelligence rather than general trade war anxiety.

Trading Implication: If historical patterns hold, a formal announcement on Section 232 scope expansion should occur by February 20-March 5. Traders can position for this by buying March-April settlement contracts on Steel ETR (if such markets exist) or hedging via steel futures + options strategies that profit from volatility spikes around announcement dates. The information edges in tariff markets often come from tracking these lead indicators that precede official policy by 6-8 weeks.

Next Week Preview: Watch for trade deficit data and USTR Tai's Davos speech. Any comments suggesting Phase One Deal replacement negotiations could shift China ETR odds significantly. We'll also track Congressional hearing testimony for clues on copper tariff timeline.

Sources

• US Census Bureau Foreign Trade Statistics (December 2024, released January 8, 2025)
• USTR Federal Register Notice, Docket USTR-2024-0052 (January 7, 2025)
• US Customs and Border Protection HQ H318764 (January 10, 2025)
• European Commission Press Release IP/25/0089 (January 11, 2025)
• Shanghai Shipping Exchange Container Freight Index (weekly data)
• Port of Los Angeles Trade Statistics (December 2024)

Risk Disclosure

Tariff policy involves substantial uncertainty. This weekly summary is for informational purposes only and does not constitute investment advice. Prediction market odds reflect crowd consensus and may be wrong. Past policy patterns do not guarantee future outcomes. Steel import data may be revised in subsequent Census Bureau releases.

Ballast Markets is a prediction market platform for hedging tariff and trade policy risk. Learn more at ballastmarkets.com.