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Market Perspectives: The tariffs Wheel of Fortune continues to spin

Anthony Willis

Senior Economist

Key Takeaways

Tariffs once again dominate headlines, as the White House begins to communicate new rates following the 90-day cessation.
Stock markets seem untroubled, however, with the S&P 500 hitting a record high, which could further embolden President Trump.
Several countries have been threatened with tariffs way beyond the 10% baseline, with Vietnam, India, Brazil and the Europe Union in particular facing higher rates.
Sector-specific tariffs are also under consideration, including for copper, timber, semis and pharmaceuticals, all of which would raise the overall effective rate.
The impact of the tariffs will be lagged, but we are concerned that a lot of good news is already priced into markets, with downside risks not fully appreciated. We watch the outcome with great interest.

Transcript

Tariffs are once again dominating headlines, with plenty of new rates being announced by the White House, and the deadline for negotiations to avoid or reduce ‘reciprocal tariffs’ pushed back by three weeks. Back in April, President Trump promised ‘90 deals in 90 days’ with a view to the 9 July deadline. But by their own count, the US has only managed three deals since then. The White House has now begun sending letters to trading partners advising them of their new tariff rate, or ‘deal’ as Trump described it, which for most countries appears to repeat the tariffs that were waved on ‘Liberation Day’.

Financial markets, however, remain untroubled by the tariff talk, with the S&P500 hitting a record high last week. The strength in equity markets appears to be based on the view that, despite all the bluster, Trump’s bark will remain worse than his bite and tariffs will end up close to the 10% baseline seen with the UK and China. However, it would appear that there is a level of complacency, and the lack of volatility in financial markets is emboldening the President to push forward with more aggressive tariffs. Indeed, the President commented: ‘I think the tariffs have been very well received … the stock market hit a new high today.’

For some countries, tariffs will be significantly higher than 10%. Trump has said that for most countries without a ‘deal’ the rate will be 15%-20%. Vietnam, for example, is 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 Trump has threatened a 30% tariff rate for the EU. For India he suggested an additional 10% tariff because of the country’s membership of the BRICS group of emerging market nations, which the President claims was ‘set up to hurt us’. In theory, this should mean an additional 10% tariff for any BRICS nation. However, Trump has announced a tariff of 50% for Brazil – a steep jump from the 10% tariff announced in April (and Brazil actually has a trade deficit with the US).

The prospect of sectoral tariffs also looms large, with Section 232 trade investigations ongoing into trade in industries including copper, timber, semiconductors and pharmaceuticals. There was a huge jump in US copper prices last week after Trump said the US would impose a 50% duty on copper imports, later confirmed for 1 August. Trump also suggested the tariff on pharmaceutical imports would be ramp up over the next 18 months.

Additional sector tariffs will add to the overall effective tariff rate, which could be close to 20% at the start of August. However, this number is a movable feast having ranged between 2.5% and 26.5% so far this year. The volatility in tariffs, moving back to levels not seen since the 1930s, highlights the difficulties in planning for the future. However, a landing zone around 20% is considerably higher than is priced in markets and could see sentiment move from ‘glass half full’ to ‘glass half empty’ should tariffs start August higher than is assumed.

Financial markets have been on a strong run over recent months, taking the S&P 500, for example, back to record highs and ‘overbought’ levels. In Europe, both the DAX in Germany and the UK’s FTSE 100 traded at all-time highs last week.

Economic fundamentals remain encouraging, but the coming months will reveal the impact of tariffs as the lagged effect comes through and companies choose to either absorb the additional costs or pass them on to consumers. Given market levels, we are somewhat concerned that 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 are moving towards the 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 will watch the upcoming earnings season closely, 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.

14 July 2025

2025年 July 14日

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Market Perspectives: The tariffs Wheel of Fortune continues to spin

Key Takeaways

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