The July 9 deadline is approaching, leading to some concrete outcomes in the disputes with American trading partners. Just a week ahead of the deadline, the only finalized transactions involved England and Vietnam, alongside a temporary ceasefire engineered with China back in May.
No new agreements have been reported this week as of July 9th.
Treasury Secretary Scott Bescent indicated that the administration is pivoting toward 18 nations, which make up a staggering 95% of the US trade deficit. He mentioned in a CNN interview on Sunday that countries unable to finalize trade agreements by August 1st could see tariffs revert to levels reminiscent of April 2nd.
Later on Monday, President Trump announced plans for a 25% tariff on imports from Japan and South Korea if resolutions are not achieved by then, with this taking effect on August 1st. This situation affects 12 other countries as well, with disputed tariff increases ranging from 25% to 40%, in line with rates announced back in April.
On Thursday, Trump escalated tensions by threatening Canada with a 35% tariff, lifting the global average tariff from a previous rate of 15-20%.
Another wave of tariffs surfaced on July 9th, significantly hinting at a potential 50% tariff affecting Brazil, linked to what has been described as a “Witch Hunt” against former President Jia Bolsonaro.
The trade talks have been grappling with reciprocal tariffs, but a looming challenge is the pending product tariffs.
Trump clarified that the 25% tariffs on Japan and South Korea would not take into account existing sector-specific tariffs that his administration has put in place. Both countries are major players in auto exports and are currently facing steel tariffs, which stand at 25% and 50%, respectively.
Andy Laperierre from Piper Sandler notes that if fully enacted, these sector tariffs could extend to more than 40% of all US imports. This is reflected in reports from Financial Times highlighting an unclear trajectory for tariffs in new sectors such as pharmaceuticals and semiconductors, which poses hurdles for negotiations.
Additionally, Trump revealed plans for a 50% customs tax on copper, set to begin on August 1st, while suggesting possible tariffs on medications of up to 200%.
In light of the announcements made this week, the US stock market reaction has been relatively subdued compared to three months back. It seems investors have become accustomed to Trump’s approach, often viewing his threats with skepticism, which might be contributing to a certain level of apathy.
Yet, there are murmurs about why he seems determined to confront virtually all American trading partners.
In my opinion, Trump possesses a long-standing commitment to tariffs that dates back to the 1980s, and he likely won’t change course unless market forces dictate otherwise.
Interestingly, the current state of the stock market could be bolstered by the fact that consumer prices have not yet visibly escalated due to tariffs. This could largely be because companies have stocked up on imports ahead of the “liberation date” set for April 2nd.
Research from manufacturers and small businesses signals that prices are indeed on the rise. The Federal Reserve is notably reluctant to raise interest rates, expecting clearer indicators soon.
In the meantime, both households and businesses are feeling the pressure from the uncertainty surrounding tariffs and trade wars. While we’re not facing a recession right now, there’s definitely a noticeable economic slowdown.
The Economic Policy Uncertainty Index, created by Scott Baker, Nick Bloom, and Stephen Davis, has surged past the levels seen during the financial crisis of 2008, making comparisons to the Covid-19 pandemic relevant. This index is grounded in the frequency of articles discussing uncertainties in economic policy.
This growing uncertainty was reflected in consumer confidence surveys, which took a significant dip before Trump’s April 2nd announcement.
This was also matched with a notable slowdown in personal consumption, dropping from a 2.4% rise in Q4 2024 to just 0.8% in the first quarter of the current year. The trend continued into April and May, showing some negative consumption patterns.
Moreover, this rising uncertainty is influencing how companies are managing their workforce. Private sector job growth has sharply declined in the first half of this year; for instance, the June Jobs Report indicates that numbers weren’t as robust as initially anticipated.
While the private sector only added 74,000 jobs—its smallest increase in eight months—government sector figures were steadier, principally bolstered by state and local employment.
American companies seem hesitant to lay off workers while trade complications remain unresolved. Meanwhile, reports suggest that job prospects for new graduates are looking quite tough.
A silver lining is showcased in the uptick in business capital expenditures, which has been increasing steadily over the past four years. This could be further enhanced by provisions in Trump’s budget bill that cover full costs related to equipment and research and development expenses.
However, Financial Times warns about the increasing challenges for businesses as they navigate the present landscape. Many firms are keeping their strategies while stockpiling imports, taking advantage of a system that allows importers to hold goods for up to five years.
The ongoing uncertainty surrounding tariffs has also led to a noticeable decline in merger and acquisition activities this year.
Despite all of this, a silver lining for some investors is that the worst may be behind us, as the likelihood of an all-out trade war between the US and China appears to be diminishing.
Still, the current global trade conflict effectively disrupted the postwar international trading system that fostered remarkable economic growth. The path forward remains uncertain, with no clear strategies for addressing these ongoing challenges.
