Fresh Tariff Concerns Over the Weekend
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Fresh Tariff Concerns
Another week, another bout of tariff escalations. The July 9 deadline for deals was pushed back to Aug 1, with the caveat that no further extensions would be given. Despite this, the tariff pen was hard at work:
35% tariffs on Canada, up from 25%
25-40% tariffs on South Africa and Asia
50% tariffs on Brazil and added tariffs on BRICS countries (Brazil, Russia, India, China, South Africa)
50% tariffs on copper and a possible 200% on pharmaceuticals
30% tariffs on Mexico and EU announced over the weekend
General blanket tariffs of up to 20% on everyone else, up from the current baseline of 10%
The market has come to understand that these announcements are all bite and no bark. The reason Trump needs to ratchet up the pressure is because negotiations are not concluding as fast as he would like. There is a certain trajectory of progress he must demonstrate to his supporters, as well he wants to move on to the next phase of his grand plan (shifting away from trade policy towards domestic fiscal support).
Here's Why Tariffs Don't Matter
They are a drop in the bucket. So far, the tariffs have collected $100B in revenues, and will reach $300B by the end of the year. This $300B burden is split across small businesses, foreign producers, consumers, and multi-nationals. Importantly, they are charged on the input price and not the final goods price which dampens the hit.
$300B sounds like a lot. But consider that the total consumer disposable income in the US is $23T, and the total revenues of all companies in the S&P500 of $17T. It’s a drop in the bucket; certainly not enough to derail consumer spending and business investment.
In order for tariffs to impact the economy, you need a re-escalation. We would need to see Trump cancel all negotiations and slap 50% tariffs on the whole world. We’re not saying that’s impossible, but Trump’s policy is not going down that path. They are switching from hardline trade tactics to fiscally supportive domestic policies focusing on taxes, de-regulation, watering down DOGE, etc. We wrote about all that in this post, in the section entitled “Shifting Priorities”.
While Trump is making statements to force negotiations to come to a close, he's also pragmatic enough to not want to upend the economy. We now have the econ data to know that tariffs aren’t hurting consumer wallets. As long as this dynamic remains in place, expect further escalations in Trump rhetoric but no real threats for investors.
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