Trump tariffs - latest

The letters sent at the weekend to America's trading partners mark the latest but surely not last development in President Trump's attempt to reset global trade relations. They threaten substantial further tariffs, in addition to the 10% already added in most cases, effective from 1 August, unless agreements can be negotiated; and they follow product-specific threats earlier in the week to copper and pharmaceuticals.

The new numbers do not seem to be simply a re-statement of the postponed 'Liberation Day' tariffs, but are substantial (indeed in some cases they seem to be higher than the 2 April imposts). In yet another rebuff to the Beltway and to governing bureaucracies everywhere, the letters are drafted in a remarkable style.

Market response has been modest (with exception of the copper futures contract), especially when compared to what happened in early April. Stocks softened late last week as news started to break, and are weaker again this morning, but the cumulative decline from last week's new all-time highs in local currency terms is less 1% as we write. The dollar and gold are a little firmer, but bonds are softer: this is not yet a comprehensive 'risk off' move.

As noted in earlier posts, markets had looked (we thought) a bit over-confident going into this latest phase, and the so-called 'TACO' trading gambit is surely a risky one – not least because its popularity may in itself spur a capricious and insecure President to demonstrate that he's no chicken really. We would not be surprised at more volatility: we have after all been in "wait and see" mode for many months now.

That said, when (if?) the noise subsides, we still expect tariffs to eventually settle at compromise levels which – while higher than under Biden – are a hindrance, but not an existential threat, to trade. The costs of bigger numbers to the US economy and president Trump's approval ratings are likely too big to be sustained, while America's trading partners likely recognise that he has a point, however he chooses to express it.

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