Deutsche Bank Warns Tariff Strategy Risks Undermining U.S. Policy Credibility

Deutsche Bank has raised serious concerns about the methodology behind the U.S. administration’s new tariff strategy, warning that it could damage policy credibility and weaken the U.S. dollar.

In a note to clients, the bank outlines three key conclusions:

1. A Narrow, Mechanistic Focus on Goods Deficits:
The administration appears to be targeting countries based purely on their goods trade deficits with the U.S., excluding services from the equation. Deutsche Bank notes that this approach is highly mechanical and lacks a nuanced evaluation of both tariff and non-tariff barriers. It also aligns with the legal framework underpinning the tariffs, which frames the trade deficit as a national emergency.

2. Disconnect Between Rhetoric and Reality:
Despite recent messaging suggesting a comprehensive review of bilateral trade relationships, the final policy outcome appears disconnected from that narrative. Deutsche Bank warns this gap may erode the administration’s forward-looking policy credibility. Markets could begin to doubt whether significant economic decisions are being made through a structured and deliberate planning process—particularly concerning, given that this marks the most significant U.S. trade policy shift in a century. With major fiscal decisions looming over the next two months, the timing is critical.

3. An Unstructured Approach to Trade Negotiations:
The current method for calculating tariffs suggests a more open-ended and less coordinated approach to trade talks. Deutsche Bank points out that there are no clear policy demands tied to the measures, only a general aim of reducing bilateral trade imbalances. This could result in unpredictable and prolonged negotiations in the months ahead.