Stocks surged on less hawkish Trump tariffs and Fed talks
·
Trump is scaling back reciprocal tariffs ~10% on
most countries except Brazil and Canada so far; Chinese tariffs now ~30%
including a 20% Fentanyl levy
·
Trump’s net effective Canada tariffs remain
unchanged at 9.50% (April vs August), while that for Mexico may remain around
15%
·
Fed is now preparing the market for 50 bps
cumulative rate cuts in September and December, with a potential QT/QE
combination (MBS/TSY reshuffling)
·
Fed may continue to drain out MBS and buy TSY bonds
to recalibrate the Balance Sheet and bond yield market as a long-term strategy
Wall Street surged Wednesday, July 9, on techs boost amid signs of tech & trade war de-escalation between the US and
China. Trump sounded soft on China in his daily media briefings. Trump said: “I have a good relationship with China’s
President Xi; China is paying a lot of tariffs to the US and opening up for our
products & services”. NVIDIA also led the rally as the AI Chip giant
plans to launch a new AI chip designed specifically for China as early as
September, and the CEO, Huang, is seeking talks with China’s Premier Li Qiang
in the forthcoming China AI summit. Nvidia briefly touched a $4 trillion market
cap, almost equivalent to India’s nominal GDP and overall stock market
capitalization. The S&P 500 surged 0.6%, snapping a two-day losing streak,
while the Dow added 217 points and the Nasdaq 100 rose 0.7%.
Fast
forward, on Thursday, July 10, 2025,
Wall Street futures surged as Trump’s proposed tariffs, scheduled to be
effective August 1, might be lower by around 8% to ~22% vs earlier 30% (April
2, Liberation Day). Further, if
we adjust the 3%% average tariffs in pre-Trump 2.0, the net tariff impact would
be around 19% from August 1. Now, considering equal sharing of additional
tariffs burden by US importers, consumers, as well as exporters, each
stakeholder may have to digest around 6.50% on around $3T worth of US
merchandise imports (consumer & industrial goods/raw materials). Although
both US importers and exporters may have to sacrifice some margin to retain
market share, it may affect their bottom line despite some FX (cross currency)
adjustments.
But overall, Trump
tariffs may be manageable for US consumers, even after considering the neutral
effect of Trump tax cuts, and also Medicaid/SNAP/Education subsidies cuts. The
cost of living for ordinary Americans is bound to rise, but the overall impact
would be limited on Main Street if Wall Street (US importers) and Global Street
(Exporters-Rest of the World) absorb at least 1/3rd each. But the
question is whether both the US importers and global exporters will absorb
partial Trump tariffs or not?
Another factor
that US exporters may also face is limited reciprocal tariffs and non-Tariffs
regulatory barriers in various EMs, like India. Trump is now desperate to
export US farm products to the rest of the world to gain a vote bank, but this
may not be easy. Apart from various regulatory & cultural hurdles, various US
farm products like Corn and wheat are facing hurdles from internal US issues,
including supply chain disruptions, quality issues, and also various regulatory
and Trump tariffs/counter tariffs issues. Canada, Australia are gaining US farm
market share for erstwhile reliable US customers like Thailand and Indonesia.
Thus, Trump wants to export US farm products to big countries like India, China,
and the EU.
Trump’s Timeline for Liberation Day 2.0 Tariffs
July 7,
2025: Trump announced a delay in
implementing higher "reciprocal" tariffs, originally set to take
effect on July 9, 2025, pushing the deadline to August 1, 2025. This decision
followed discussions with Treasury Secretary Scott Bessent, who believed more
time could secure trade deals with countries like India and the European Union.
These tariffs were initially announced on April 2, 2025, Liberation Day 1.0 as
a 10% baseline on all imports, with higher rates for specific countries (e.g.,
24% for Japan, up to 49% for Cambodia), but were paused for 90 days to allow
negotiations.
July 9,
2025: Trump sent letters to 14
countries, including the Philippines, Brunei, and Sri Lanka, outlining new
tariff rates effective August 1, 2025, ranging from 20% to 40%. He also floated
a potential 15-20% blanket tariff on most trading partners, higher than the
current 10% baseline.
July 10,
2025: Tariffs on steel and
aluminum imports were doubled to 50% on June 4, 2025, with exemptions for the
UK. Additionally, Trump confirmed a 50% tariff on copper imports starting
August 1, 2025, and suggested a potential 200% tariff on pharmaceuticals in the
future (after 1-2 years), so that various pharma companies can set up
manufacturing facilities including the basic APIs (raw materials) to reduce
China dependency.
July 10,
2025: Trump imposed a 50% tariff
on Brazilian imports, partly in response to Brazil’s BRICS comments and alleged
ill- treatment of former President Jair Bolsonaro, and reiterated his focus on
using tariffs to address trade imbalances and national security concerns;
overall Trump’s 50% Brazil tariffs is politically motivated due to his
perceived BRICS threat to undermine USD’s global dominance.
July 10,
2025: Trump imposed 35% tariffs
on Canadian goods, set to take effect on August 1, 2025, unless negotiations
yield a new agreement. Canada’s decision to drop the DST has reopened talks,
but Trump’s unpredictable approach—marked by rapid announcements and
reversals—creates uncertainty. Goods under the USMCA may still be exempt, but
Trump’s recent statements suggest he might not honor previous exemptions.
Tariff war
with Canada under Trump 2.0 (Since January 2025)
January-March
2025
·
January 20, 2025: On his first day back in office, Trump signaled intent to impose
tariffs, issuing an executive order directing cabinet picks to prepare new
tariffs, setting the stage for action.
·
February 1, 2025: Trump signed executive orders imposing a 25% Fentanyl tariff on all
Canadian non-USMCA goods (except energy resources) and a 10% tariff on Canadian
energy resources, effective February 4, 2025. This was justified under the
International Emergency Economic Powers Act (IEEPA) to address fentanyl
trafficking and border security concerns. Energy tariffs were lower (10%) to
reflect Canada’s role as a key energy supplier.
·
February 4, 2025: Tariffs took effect, covering all goods except
those in transit before February 1. Canada retaliated with 25% tariffs on $30
billion of U.S. goods (e.g., orange juice, peanut butter) on March 4, 2025, and
proposed additional tariffs on $125 billion.
·
March 4, 2025: Tariffs were adjusted to minimize disruption to the automotive
industry. USMCA-compliant goods remained at 0%, non-USMCA goods at 25%, and
energy/potash at 10%. Canada’s response included a $1.3 billion border security
plan and a 97% drop in fentanyl seizures by January 2025.
·
March 11, 2025: Trump threatened to double steel and aluminum tariffs to 50% but
reversed this after Ontario paused a 25% electricity surcharge, agreeing to
renegotiate the USMCA.
April to
July-10, 2025
·
April 2, 2025: Known as "Liberation Day," Trump imposed a 10% baseline
tariff on all imports, with Canada’s non-USMCA goods at 25% and energy at 10%.
Steel and aluminum tariffs were raised to 50%, with exemptions for the UK.
·
June 27, 2025: Trump terminated trade talks with Canada over its 3% digital services
tax (DST) on U.S. tech companies, promising new tariffs within seven days.
·
June 30, 2025: Canada blinked and scrapped the DST, reopening negotiations, but
tensions persisted.
·
July 10, 2025: Trump announced a 35% tariff on most Canadian goods, effective August
1, 2025, citing fentanyl issues and Canada’s alleged retaliation. The letter
suggests potential adjustments based on negotiations and mentions adding Canada’s
tariff increases to the 35%; but the 35% tariff awaits implementation, with
uncertainty around USMCA exemptions and fentanyl-related stacking (e.g.,
potential 60% on non-USMCA goods if the 25% fentanyl tariff applies
separately).
Key
Observations: Canada Tariffs: 9.50% vs 9.50% (Apr vs Aug )
·
Trump tariffs on Canadian goods on April 2: USMCA goods ~55% @0% tariff+ non-USMCA ~10% @60%
tariffs (10% basic+25% reciprocal +25% Fentanyl) +Energy products ~35%@10%
tariffs=total weighted average tariffs=55*0%+10*60%+35*10%=0+6.00+3.50=9.50%
·
Trump tariffs on Canadian goods on August 1: USMCA goods ~55% @0% tariff+ non-USMCA ~10% @60%
tariffs (35% reciprocal +25% Fentanyl) +Energy products ~35%@10% tariffs=total
weighted average tariffs=55*0%+10*60%+35*10%=0+6.00+3.50=9.50%
·
Thus net
effective Trump tariffs on Canada remain the same at 9.50% on April 2 and
August 1 as per the above analogy
Key
Observations: Mexico Tariffs: 15.00% vs 15.00% (Apr vs Aug-likely)
·
Trump tariffs on Mexican goods on April 2: USMCA goods ~75% @0% tariff+ non-USMCA ~25% @60%
tariffs(10%basic+25%reciprocal+25%Fentanyl)= 75*0%+25*60%=0+15=15.00% (weighted
average)
·
Trump tariffs on Canadian goods on August 1: USMCA goods ~75% @0% tariff+ non-USMCA ~25%% @60%
tariffs (35% reciprocal +25% Fentanyl)=75*0%+25*60%=0+15=15.00% (weighted
average)
·
Thus net
effective Trump tariffs on Canada remain the same at 9.50% on April 2 and
August 1 as per the above analogy
Key
Observations: China Tariffs: 64% vs 30% (Apr vs Aug)
·
Trump tariffs on Chinese goods on April 2: 10% basic, 34% Reciprocal +20% Fentanyl=64%
·
Trump tariffs on Chinese goods till August 12: 0% basic, 10% Reciprocal +20% Fentanyl=30%
·
After the Geneva
and London truce, Chinese tariffs on US goods are also at 10%
·
Due to domestic
political compulsion, both Trump and Xi may not want to divulge mini trade deal
details publicly
Overall, considering 25% minimum sectoral tariffs, the
effective weighted average US tariffs were ~30.50% in April vs 21.50% in
August; i.e., there will be a decrease of around 9% equivalent to basic
universal tariffs of 10%, which is now clubbed with net reciprocal tariffs. There
may be scope for withdrawal of Fentanyl tariffs on China (@ @ @ @20%), Canada (@
@25%) and Mexico (@ @25%) in the coming days, depending upon further
negotiations.
Conclusions
Trump may keep around 20-25% tariff rates for most
of the countries, while close allies/trading partners like the EU may get 10%
and permanent adversary countries like China may get 30% (including 20%
Fentanyl tariffs). The potential weighted average tariff rate after Trump’s
latest tariffs, to be effective August 1, 2025, and various sectoral tariffs
(25%-50%) may be around 21.50-22.50% ~22%; China alone constitutes around 14%
of total US merchandise imports. This is 8% lower than the ~30% weighted
average tariffs announced on April 2, Liberation Day, and in line with the
actual 19.5% from April’25 (Trump 2.0). But it’s still significantly higher
than 2.5% weighted average rates till January’25 (pre-Trump 2.0).
Trump extended his new tariffs rhetoric to the
August 1 deadline by which various affected countries may have an opportunity
to offer a better deal to the US for getting lower tariffs. Although Trump
should not further extend his tariff deadline as it may keep the Fed on the
sidelines till December’25, considering the looming festival season (X-Mas),
various US retailers and importers may have already placed orders to big
exporters like China, Vietnam, etc. Thus, Trump may not distort the supply
chain further till at least September’25 or even December’25. Although Trump is
issuing a warning that August 1 will be the tariff deal deadline and it will
not be extended further, the market still does not believe Trump’s
back-and-forth narrative.
So, if Trump does not get a better deal, he may
again extend the tariff deadline to September or even December’25. Although
Trump always maintains that exporters like China pay his tariffs, not US
importers, it’s laughable. Tariffs are import duties to be paid by importers
when foreign goods enter the US. Higher tariffs are usually borne by importers
and consumers. But in this case, as the US is the world’s biggest consumer
(departmental stores), exporters may have to sacrifice some margin either from
their own pockets or to be compensated partly by their respective government
(export subsidies).
The Fed is assuming Trump tariffs may be borne
equally by exporters, importers, and US consumers at 1/3rd each. But
Trump’s weighted average tariffs at present rates may be ~22%, which would be
slightly than the Fed’s best-case scenario of 15% and closer to the base case
scenario of 25%. Overall, at around 22% weighted average tariffs vs 3% prior,
the cost of living may be higher if exporters and importers do not absorb at
least 70% of the higher tariffs. If they attempt to retain market share, their
margin (EBITDA) will be affected to some extent; if they do not absorb
additional Trump tariffs, the US economy may head towards a stagflation-like
scenario due to subdued discretionary consumer spending.
Trump may have explained to Fed Chair Powell
privately about his tariff strategy to get a better deal for US exports by
pressuring trading partners through higher tariffs. Trump is also using his
tariff threat as an effective tool to bring back US manufacturing. Thus Fed may
now cut rates from September’25 as Trump’s effective tariff rate may now hover
around 20% higher than previously, the burden of which may be equally
distributed among stakeholders (US importers, consumers, and also global
exporters).
Bottom line
Trump’s higher tariffs ~20% may cause both subdued
consumer spending and soft corporate report card, both of which are negative
for Main Street as well as Wall Street; it would also be negative for Global
Street if exporters have to bear some cost. Thus, overall, Trump’s tariffs may
cause a synchronized global economic slowdown to some extent, even if the
weighted average tariffs scheduled to be implemented at around a 22% rate vs
earlier April 2 levels of 30%.
Market
impact
Wall Street surged Thursday, July 10, and scaled life lifetime high area on less hawkish Trump tariffs and Fed talks. Fed’s Governor and potential next Fed Chair Waller reiterated his personal preference to cut rates from 30th July, purely on Fed’s inflation & employment equation; i.e., economics and not politics, but he also acknowledged candidly he is in the minority camp in the FOMC. Overall, Dally and other Fed officials are now preparing the market for at least 50 bps rate cuts in September and December’25.
Technical
outlook: DJ-30, NQ-100, SPX-500 and Gold
Looking
ahead, whatever may be the narrative, technically Dow Future (CMP: 44800) now has to sustain over 45000 for a
further rally towards 45300/45800* and only sustaining above 45800, may further
rally to 46100/46500-47100/47200 in the coming days; otherwise sustaining below
44950, DJ-30 may again fall to 44200/43900-43400/42400 and
41700/41200-40700/39900 in the coming days.
Similarly,
NQ-100 Future (23000) now has
to sustain over 23100 for a further rally to 23200/23600-23800/24000 and
24100/24450-24700/25000 in the coming days; otherwise, sustaining below 22900,
NQ-100 may again fall to 2400/22200-21900/20900-20700/20200 and
19890/18300-17400/16400in the coming days.
Looking
ahead, whatever may be the fundamental narrative, technically SPX-500 (CMP: 6275) now has to sustain over 6400-6450 for
a further rally to 6525/7000-7500/8300 in the coming days; otherwise,
sustaining below 6350/6300-6250/6200, SPX-500may again fall to
6000/5800-5600/5300 in the coming days.
Technically
Gold (CMP: 3350) has to sustain over 3375-3395 for a
further rally to 3405/3425*-3450/3505*, and even 3525/3555 in the coming days;
otherwise sustaining below 3365-3360, Gold may again fall to 3340/3320-3300*/3280
and 3255*/3225*-3200/3165* and further to
3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.
Disclaimer: I am an NSE-certified market professional (Financial Analyst) and not a SEBI/SEC-registered investment advisor. The article is not a proxy for any trading/investment signal/advice. I am a financial analyst, signal provider, and content writer with over ten years of experience. All views expressed in the blog are strictly personal and not of any organization, I may be associated with.
For any professional consultation about the financial market, investing & trading ideas , and real time signals, please DM at: ashishghoshjpg@gmail.com
