It has been another week where tariffs have dominated the headlines, with plenty of dates and numbers being announced by the White House, and the deadline for negotiations to avoid/reduce ‘reciprocal tariffs’ being pushed back by three weeks.
The original deadline passed on Wednesday, with the US a long way from the ’90 deals in 90 days’ promised by President Trump but the White House has now begun sending out letters to trading partners advising them of their new tariff rate, or ‘deal’ as President Trump described it, which appears to be a reiteration of the tariffs board that Trump waved on ‘Liberation Day’ back in April.
Financial markets remain untroubled by the talk from President Trump of various tariff levels set to be imposed and the S&P500 closed at a record high yesterday. The strength in equity markets appears based on the view that despite all the bluster, the President’s bark will remain worse than his bite and tariffs will end up close to the 10% baseline we have seen as a floor for ‘deals’ with the UK and China. However, there is a level of complacency it would appear, and the lack of volatility in financial markets is also emboldening the President to push forwards with more aggressive tariffs. Indeed, yesterday the President said “I think the tariffs have been very well received…the stock market hit a new high today”. For some countries, tariff levels will be significantly higher than the 10% baseline assumed to be the landing zone for ‘deals’; Trump has said for most countries without a ‘deal’ specified in a letter, the tariff rate will be 15-20%. The ‘deal’ for Vietnam leaves tariffs at 20%, ‘less bad’ than the 46% reciprocal tariff, but still substantial. Framework tariff deals with both the European Union and India are said to be imminent, but for the latter Trump has now suggested an additional 10% tariff because of Indian membership of the ‘BRICS’ group of emerging market nations, which the President is claiming was “set up to hurt us”. In theory, this should extend to an additional 10% tariff for any BRICS nation. For Brazil, Trump has announced a tariff of 50% – this is a steep jump from the 10% tariff announced back in April, and Brazil actually has a trade deficit with the US. The US has been sending out letters to trading partners over the course of the week outlining tariff levels and while the President started the week by pushing back the tariff deadline, and sounding vague even about the new deadline, he later firmed up this date, posting on social media that “TARIFFS WILL START BEING PAID ON AUGUST 1, 2025. There has been no change to this date, and there will be no change”.
The prospect of sectoral tariffs also looms large, with Section 232 trade investigations ongoing into trade in specific industries including copper, timber, semiconductors, and pharmaceuticals. President Trump caused a huge intraday spike in copper traded in the US on Tuesday after saying the US would “soon” impose a 50% duty on copper imports, later confirmed as 1st August. Trump also suggested that the tariff on pharmaceutical imports would be “like 200%” over the next 18 months. Additional tariffs on certain sectors will add to the overall effective tariff rate, which may well be close to 20% at the start of August, though this number is a moving feast, having ranged between 2.5% and 26.5% so far this year. The volatility in the tariff rate, moving back to levels not seen since the 1930s, highlights the difficulties in planning for the future, but a landing zone around 20% is considerably higher than is priced in markets, and poses risks that sentiment may move from ‘glass half full’ to ‘glass half empty’ should tariff levels start August far higher than financial markets are assuming.
Meanwhile the US economic data remains untroubled so far by the tariffs backdrop. We will see inflation data for June published next week; so far there has been limited signs of an inflationary impulse from the tariffs imposed since April, though Federal Reserve Chair Jay Powell has noted the time lag effect and that June and July’s inflation data should give more of a signal as to how much of an impact the tariffs are having. The US labour market remains in reasonable health, with the jobs report last week surprising to the upside, with the unemployment rate actually falling. For now, with uncertainties around inflation, and the labour market giving limited cause for concern, the Fed is likely to continue to be in ‘wait and see’ mode until their September meeting at the earliest.
Financial markets have been on a strong run over recent months, taking the S&P500 for example back to record highs and ‘overbought’ levels. In Europe, both the DAX index in Germany and the UK’s FTSE100 index have traded at all time highs this week. Given tariff uncertainty is now increasing once again, we are minded not to add additional risk to portfolios and have been taking some profits in areas such as high yield credit. Economic fundamentals remain encouraging, but the coming months will begin to reveal the impact of tariffs on activity as the lagged effect of trade levies comes through and as companies choose to either absorb the additional costs or pass them on to end consumers. Given current market levels, we are somewhat concerned there is a lot of good news already priced in while downside risks from higher-than-expected tariffs and limited trade ‘deals’ are not being fully priced. We’re moving towards a time of year when volumes begin to thin as market participants head for the beach and headlines can move markets more dramatically than they should. We’re watching closely the upcoming earnings season along with the inflation data for tariff pass through, and of course for concrete tariff levels as they are agreed/imposed over the next few weeks.
Source: Columbia Threadneedle Investments as at 11 July 2025.
