Trump threatens new tariffs while delaying Liberation Day 2point 0

In addition to extending his tariff pause of 90 days, Donald Trump has threatened to impose new tariffs on pharmaceuticals and copper and has written to 14 nations outlining the tariffs they will be subject to starting on August 1

The 90-day tariff pause imposed by Donald Trump was scheduled to expire today, July 9. It was proposed that nations without a trade agreement with the US would once again be subject to the punitive measures described on Liberation Day.

On Monday, July 7, the president did, however, declare an extension through August 1. He added that letters outlining the tariffs that 14 nations, including South Korea, Japan, and Thailand, would be paying starting on this date had been sent.

The majority of the levies, which can reach up to 40% for nations like Laos and Myanmar, are comparable to those that have already been announced. Japan and South Korea will contribute 25%, while Thailand will contribute 36%. "Upward or downward, depending on our relationship with your country" is how Trump described the potential movement of interest rates.

Trump additionally stated on Tuesday, July 8, that there would be "no extensions" to the revised deadline of August 1. Additionally, he declared his intention to impose a 200 percent levy on pharmaceuticals and a 50 percent tariff on imports of copper.

We anticipate more announcements later today, July 9. "Tomorrow morning, we will be releasing at least seven countries related to trade, with a greater number of countries being released in the afternoon," Trump posted on Truth Social on Tuesday.

Tariffs on semiconductors are also anticipated to be announced shortly.

Starting on August 1st, tariffs.

The BBC and the White House are the sources.

What is the reaction of markets?

The US saw a spike in copper prices on Tuesday, July 8, but stock markets have mostly ignored the news as investors wait to see what happens.

It appears that markets are adjusting to Trump's style of operation. Investors have already factored in some of the negative news because some of the threatslike pharmaceutical tariffsare not brand-new. This year, the sector index, the Stoxx Europe Total Market Pharmaceuticals Index, has fallen more than 6%.

Trump's delay also shows that he is eager to negotiate. To date, we have only seen trade agreements with the UK and Vietnam, along with a partial deal involving rare-earth metals with China, despite his earlier pledge of "90 deals in 90 days." Over the past 90 days, his tough-as-a-rock strategy hasn't yielded the results he had hoped for.

"By targeting specific nations like South Korea and Japan, Trump is putting pressure on other nations by example, and the most recent delay in implementing tariffs indicates that he would prefer to make agreements than not," said John Wyn-Evans, head of market analysis at Rathbones.

Wyn-Evans believes that a recurrence of the Liberation Day sell-off in April is unlikely. Regardless of how much they may disagree with the idea, investors have come to terms with the fact that tariffs are here to stay and have a tendency to not discount the same possible crisis twice.

Will the new tariffs cause inflation to rise?

Pharmaceutical tariffs may have a greater influence on the rate of US inflation than the copper tariff, according to research firm Pantheon Macroeconomics.

"If fully passed on to consumers, the 50 percent tariff imposed immediately on all copper imports will raise the average effective tariff rate by a negligible 0/15 percentage points, which is equivalent to an uplift to the core PCE deflator of just 002 percentage points," stated Samuel Tombs, chief US economist at Pantheons.

Given that pharmaceuticals make up 8% of all imports, a 200 percent tariff rate on them would be a significant issue. However, the president threatened to impose this excessive rate after a minimum one-year transition period, which would allow for extensive stockpiling and reduce the impact on business expenses and inflation in consumer prices.

Additionally, the country-specific tariffs that were announced this week are not likely to have a significant effect on inflation. Ten of the 14 countries account for less than 1 percent of US imports, if you compare their respective shares.

Even if tariffs are imposed on South Korea and Japan, the two nations with the largest shares, it is unlikely that they will significantly affect US inflation.

Of all US goods imports, South Korean and Japanese imports make up 4% and 5% of the total, respectively. According to Pantheon, after accounting for exemptions and other carveouts (like separate tariffs on cars), reciprocal tariffs would only be applied to 50% of goods imported from South Korea and 30% from Japan.

Tombs stated, "Therefore, we estimate that if the 25 percent reciprocal rate were to be imposed on imports from Japan, the average effective tariff rate on all US goods imports would rise by just 0 point 4 percentage points, and by a mere 0 point 2 percentage points if imposed on South Korea."

"That indicates very slight increases to the core PCE deflator, only 0.04% and 0.02%, respectively.

Higher reciprocal tariffs on the EU are one announcement that might have a significant effect. Trump has threatened tariffs of up to 50% in the past, up from the current baseline of 10%. This has not yet been announced. Ten percent of all US imports come from the EU.

"The average effective tariff rate would increase by four percentage points and consumer prices by zero to four percentage points if the reciprocal rate were raised by forty percentage points. However, considering that the EU is prepared to retaliate and that there is little market and public support for additional tariffs, we anticipate an agreement with the EU soon," Tombs stated.

What are the future prospects?

Markets may price in some of the same worries as in April, and equity markets may decline if Trump surprises investors with more severe measures than anticipated and additional agreements are not reached before the revised deadline of August 1. Excessive trade restrictions would reduce the growth outlook and raise costs for consumers and companies.

But given how the bond markets responded the last time, investors are unlikely to be shocked in the same way as before, and it's also highly doubtful that Trump would actually do this. US Treasuries with longer maturities saw a steep sell-off in response to his tariff announcements, which caused yields to spike.

A number of theories have been proposed by experts to explain the sell-off. It's possible that in order to raise money to cover margin calls, hedge funds and leveraged investors were compelled to sell liquid assets like US Treasury bonds. Bad news for bonds: it's also possible that investors sold off in anticipation of a spike in inflation brought on by tariffs. Or perhaps, given Trump's unpredictable policymaking, investors reevaluated the stability of US Treasuries and concluded the risk-reward profile was no longer appealing.

For whatever reason, the last sell-off was sufficient to intimidate the Trump administration into compliance. The cost of borrowing from the US government increases when Treasury yields rise. A sizeable amount of the US's current debt of £36 trillion is held by foreign investors. The US is in trouble if they decide to begin selling Treasuries and yields rise as a result.

Wei Li, global chief investment strategist at BlackRock, said last month at the Investment Associations annual conference that "US debt arithmetic" might help keep Trump's actions in check. According to Li, "the United States cannot afford to drive debt servicing costs to unmanageably high levels without consequences." "For the US to maintain its debt, foreign funding is necessary. It is not really a solution to withdraw from the international market when debt is that high.

Trump consistently shows weakness.

The terms "Trump always chickens out" or "TACO" have become popular among Wall Street traders in recent months as they have noticed a trend of dramatic policy declarations followed by subsequent U-turns.

Given the approaching deadline of August 1st, it is possible that we will witness a similar situation this time around, either in the form of an extension or a relaxation of the initial tariff rates.

Trump said that another extension was not in the cards shortly after announcing the new deadline of August 1st, but tensions may ease if more agreementseven if they are only tentative ones rather than full-fledged trade agreementsare reached before then.

Meanwhile, investors will focus on the typical factors that influence markets, such as economic data and corporate profits.

With only 4% annual growth anticipated, Wyn-Evans stated, "The bar is set quite low for US corporate earnings."

"Away from the US, there have been some positive indications of a recovery in purchasing manager survey results and heightened hope for greater growth in Europe as it works to remove regulatory obstacles, boost fiscal stimulus, and increase investment in innovation.

The end of US exceptionalism, however, is not universally accepted. BlackRock, a global asset management company, is still optimistic about the US market. Its Investment Institute thinks Trump will be held accountable by "immutable economic laws" like the previously established US debt dynamics.

In a research note published in July, its strategists stated, "We see scope for overall corporate earnings to stay solid even if US growth is dented by tariff-induced disruptions and corporate caution."

According to factset estimates released earlier this month, the SandP 500 saw a 5% increase in annual earnings during the second quarter. Analysts had been predicting 9 percent back in March. It would be the lowest growth rate since the fourth quarter of 2023 if the 5 percent estimate proves to be accurate.

However, some analysts are not too worried. The important thing is that growth stays constructive and significant. In the current climate, a five percent increase in earnings is a true accomplishment that shows corporate management can overcome obstacles and still be profitable, according to Chris Beauchamp, chief market analyst at IG.