Wall Street waved on Trump’s EU tariff game; Gold, Oil slips

 

·         Trump’s latest floating balloon involving EU tariff is now 15-20% vs earlier 30% threat and market expectations of 10%; Trump may impose 20% finally

·         Trump is treating EU VAT, DST/DMA-related regulatory actions, and heavy fines on US big techs as non-tariff barriers

·         Gold slips on less dovish Fed talks and the fact that Governor Waller, advocating for a 25 bps rate cut on July 30, is in the minority camp

On Friday, July 18, 2025, President Trump significantly escalated trade war tensions, particularly with the European Union (EU), which is the biggest exporter to the US, accounting for almost 18% of US merchandise imports. Trump floated a trial balloon through FT proxy that he may impose a minimum 15-20% tariff on the EU against market expectations of 10% and the last Tariff letter of 30%.

Current Tariff Rates Threats and Policies on the EU: 30% Tariff Effective August 1, 2025: Trump threatened a 30% tariff on all goods imported from the EU, effective August 1, 2025, as part of his "reciprocal tariff" policy aimed at addressing trade imbalances. This was outlined in a letter to European Commission President Ursula von der Leyen, where Trump criticized the EU for "long-term-large, and persistent trade deficits" and warned that retaliatory tariffs would increase the rate further.

Previous Tariff Actions:

·         On April 2, 2025, Trump imposed a 20% tariff on all EU imports, effective April 9, which was later paused for 90 days, till July 9 to allow negotiations.

·         On May 23, 2025, Trump threatened a 50% tariff on EU goods starting June 1, but this was delayed to July 9 after a call with von der Leyen, and later extended to August 1, with the rate adjusted to 30%.

·         Sector-specific tariffs include a 25% tariff on all car imports (effective March 27, 2025, significantly impacting Germany) and a 50% tariff on steel and aluminum imports.

Potentially Proposed Minimum Tariff: A FT reports suggest Trump is pushing for a 15-20% minimum tariff on all EU goods, rejecting reductions on the 25% sectoral duty on EU cars, and aiming for a reciprocal tariff rate exceeding 10% even if a deal is reached. The market was expecting 10% baseline Trump tariffs on the EU. The Financial Times (FT) report aligns with recent developments in U.S.-EU trade tensions. As of July 18, 2025, President Trump is pushing for a 15-20% minimum tariff on all EU goods, a significant escalation from the previously discussed 10% baseline tariff in framework negotiations. This follows his April 2, 2025, announcement of a 20% tariff on EU imports, which was paused at 10% until July 9 to allow talks, and now faces a 30% tariff threat effective August 1, 2025, if no deal is reached.

EU Response:

·         The EU has criticized the tariffs as unfair and disruptive, with von der Leyen emphasizing the need for a trade agreement by August 1, 2025, while preparing "proportionate countermeasures" if necessary (as plan B).

·         On April 7, 2025, the EU offered a "zero-for-zero" tariff agreement on industrial goods, which was not accepted by the US.

·         On April 9, the EU approved 25% retaliatory tariffs on €21 billion of US imports, effective April 15; then eventually to mid-July and mid-August (depending on Trump’s actual tariff action)- targeting goods from Republican-held areas to minimize reliance on US suppliers.

·         EU Trade Commissioner Maroš Šefčovič stressed that trade must be built on "mutual respect, not threats," and the EU remains open to negotiations.

Economic Impact:

·         The 30% tariff, combined with sector-specific levies, could disrupt transatlantic supply chains, raise consumer prices, and potentially push the EU into a recession while increasing US inflation, and may also cause stagflation.

·         The EU's average tariff on US goods is approximately 4.8% (per WTO estimates), far lower than the 39% claimed by Trump, which is based on a flawed calculation using trade deficits rather than actual tariff rates.

Broader Context: Trump's tariffs are part of a broader strategy to address perceived trade imbalances, invoking the International Emergency Economic Powers Act (IEEPA) to justify actions as a national security measure. The US has a trade deficit with the EU of ~$236 billion in 2024, which Trump cites as justification for higher tariffs, though the EU notes this is offset by a US surplus in services. Negotiations with the EU have been slow, with Trump expressing frustration and stating he is "not looking for a deal" with the EU, unlike agreements reached with the UK and Vietnam.

Trump’s game of chess with the EU tariff

The erratic nature of Trump's tariff announcements (e.g., proposing, pausing, and adjusting rates) has caused market volatility and uncertainty for global trade partners. The EU's retaliatory measures and strategic targeting of US red states suggest a calculated response to pressure the Trump administration politically, which could escalate tensions further.

Trump’s rejection of the EU’s offer to reduce car tariffs, opting to maintain the 25% duty on the sector, underscores his hardline stance, particularly impacting Germany’s auto industry. The EU, with a ~$236 billion goods trade surplus with the U.S. in 2024, faces pressure to negotiate, but Trump’s insistence on higher tariffs—even with a potential deal—signals limited flexibility. EU Trade Commissioner Maroš Šefčovič described recent Washington talks as challenging, while the EU prepares retaliatory tariffs on €21 billion of U.S. imports, with further measures targeting €84 billion in U.S. goods under consideration.

Economists warn that a 15-20% tariff, combined with existing 50% steel and aluminum tariffs and 25% auto tariffs, could disrupt transatlantic trade, raise U.S. consumer prices, and risk pushing the EU into a recession. The EU’s strategy includes good-faith negotiations, preparing countermeasures, and coordinating with other affected nations, but Trump’s approach suggests a preference for confrontation over compromise.

Trump is treating the EU VAT on US goods as another tariff barrier.

The EU’s average Value Added Tax (VAT) rate across its 27 member states is approximately 21%, based on standard VAT rates applied to most goods and services. However, VAT rates vary by country, ranging from 17% (Luxembourg) to 27% (Hungary), with some reduced rates for specific goods like food, books, or medicines as low as 0-5% in certain cases. Unlike tariffs, VAT is a consumption tax applied equally to domestic and imported goods at the point of sale, not at the border, and is refunded for exports under WTO rules. Trump's tariff calculations are misleading, as they do not reflect actual tariff rates but rather trade deficits, and conflating VAT with tariffs is inaccurate since VAT applies equally to domestic and imported goods.

President Trump has repeatedly claimed that the EU’s VAT acts as a tariff barrier for U.S. goods, arguing it disadvantages American exporters. For example, in a July 2025 statement, he cited the EU’s VAT as part of a “39% tariff equivalent” on U.S. goods, conflating it with trade deficits and actual tariffs (which average 4.8% on U.S. goods per WTO data). Economists and EU officials, including Trade Commissioner Maroš Šefčovič, have refuted this, noting that VAT is not a tariff, as it applies uniformly and does not discriminate against imports. The U.S. does not have a federal VAT, relying instead on state sales taxes (averaging 7.5%), which creates a structural difference Trump exploits in his rhetoric.

This mischaracterization fuels Trump’s push for a 15-20% minimum tariff on EU goods and the 30% tariff threat effective August 1, 2025, as a retaliatory measure. The EU argues that its VAT system complies with international trade rules, and its offer for a “zero-for-zero” tariff deal on industrial goods was rejected by Trump, who maintains high tariffs (e.g., 25% on cars, 50% on steel/aluminum). This stance risks escalating trade tensions, with the EU preparing retaliatory tariffs on €21 billion of U.S. imports, potentially expanding to €84 billion.

Trade dynamics between the US and EU and EZ (EA/Euro Area)

Overall, both the US and EU are dependent on each other in trade; the US exports around 23% of its total exports to the EU, while the EU exports around 22% of its overall exports to the US. The trade relationship between the US and the EU is the world’s largest, with goods and services trade reaching nearly $1.6 trillion in 2024, with an average of $1.4 trillion in the last 6 years (2018-24). The trade balance between the US and the EU from 2018 to 2024, as estimated by the US BEA, reflects a consistent US trade deficit, with the EU maintaining a surplus in goods trade and the US typically holding a surplus in services trade.  Overall, the US trade deficit with the EU reached around $318 billion in 2024 from almost $90 billion in 2018, averaging $150 billion per year in the last six years (2018-25).

The US-EU trade dynamics are heavily shifted by EU dominance in goods (pharmaceuticals, vehicles, machinery) and a decreasing services balance favoring the EU since 2023. The US trade deficit has grown due to strong EU exports into the US amid comparatively lower tariffs, and US consumer preferences for value for money (cheaper, but branded), while US exports are facing various stringent EU regulations, and the EU’s macroeconomic imbalances including subdued discretionary consumer spending.

If we consider only EZ/EA (Euro Area), the average US trade deficit was around $98 billion between 2018—24, and by 2025, it’s projected to be around $50 billion. EU/EZ has reportedly proposed to buy US LNG for around $50 billion to neutralize the trade surplus issue with the US/Trump for getting a fair/favorable trade deal. Goods exports alone (~15% of GDP) underscore the EU’s reliance on manufacturing and trade, particularly in countries like Germany, Ireland, the Netherlands, France and Italy. China’s merchandise exports also constitute around 17% of its nominal GDP. The US is less export-dependent due to its large domestic market, low savings, and focus on consumption-driven growth.

The US runs a persistent trade deficit ($1.2 trillion in 2024), unlike the EU or China trade surplus. China’s export model relies on low-cost production and emerging markets, contrasting with the EU’s high-value focus, but the difference is now narrowing. China’s growing presence in high-value, sophisticated sectors (e.g., electric vehicles, aerospace, military equipment) challenges EU exporters. The EU’s regulatory burden (e.g., deforestation rules, Digital Markets Act) may deter some markets. China is now the biggest competitor of the EU in terms of merchandise exports and a manufacturing hub. The US’s trade deficit reflects its role as a capital importer, driven by a favorable business environment and large internal market, not solely by EU trade practices.

The EU’s economy is built on open markets and trade liberalization, with a single market & currency (EUR) facilitating intra-EU trade and a customs union enabling collective trade negotiations. Export-led growth is a deliberate strategy, especially for Germany, which uses exports to drive industrial output and employment. The EU/EUR was created as a common devalued currency to help the German economy. Proximity to key markets like the UK, Switzerland, and Turkey facilitates trade; this includes even the US, on the other side of the Atlantic. The EU’s extensive trade agreements (e.g., with Japan, South Korea, and Canada) reduce barriers, boosting exports.

The EU is deeply integrated into global value chains, particularly in the pharmaceuticals and automotive sectors, where components cross borders multiple times before final export. Ireland’s role as a pharmaceutical hub (30% of EU exports to the US) exemplifies this integration. The EU hosts global leaders in pharmaceuticals (e.g., Roche, Novartis), automotive (Volkswagen, BMW), and machinery (Siemens), which thrive on international demand (global brands). High-quality standards and innovation (e.g., Germany’s Industry 4.0) ensure competitiveness in global markets. Post-World War II, Western European economies rebuilt through export-led industrialization, a model continued under the EU’s single market (1993) and euro adoption (1999). The EU’s trade surplus strategy counters domestic demand constraints in some member states.

Intra-EU trade (goods and services among member states) is significant, accounting for ~60% of total EU goods exports ($1.68 trillion of $2.8 trillion). This internal market amplifies the EU’s export orientation, as member states treat intra-EU trade as exports. Total Ex.  EU exports (goods & services) were around $1.8 trillion against China’s $3.5 trillion and the US’s $2.9 trillion; i.e., China is the top exporter in the world, followed by the US, if we do not consider intra-EU member states trade as export. Overall including intra-EU trade treated as export, the EU is an export-heavy economy; almost 22% of GDP comes from exports against 12% USA and 19% in China.

Trump’s hawkish tone about the EU- the ‘mini China’

Trump often termed the EU a ‘mini-China’, but more harmful than China. As per Trump’s narrative, China, the EU, and virtually all other big US trading partners, having large trade deficits with the US, are virtually ripping off the US for decades after decades. This includes both US allies and adversaries. Trump 2.0 has emphasized reducing the US trade deficit through tariffs, targeting the EU due to its $235.6 billion goods deficit in 2024.

Trump's admin often pointed out that EU export to the US is a proxy of China, as most of it originates from China (transshipment). The EU has around $220 billion in Goods exports, while $76B is a service deficit with the US and $319B goods deficit with China. Thus, Trump’s trade officials often pointed out the EU as an export proxy or transshipment hub for China. Various Trump officials also maintain the same Chinese proxy concept for Mexico, Canada, Vietnam, and even partly India.

Trump often says that the EU and the EUR were formed to undermine the US and the USD. Trump also criticizes the EU's austerity, especially regarding its contribution to NATO and military spending. Trump has indeed increased EU/Europe spending on military/NATO from earlier ~2% to ~5% of the budget.

Trump’s Reservations about the EU’s Digital Services Tax (DST) and Civil Cases Against U.S. Big Tech Companies

President Donald Trump’s reservations about the European Union’s (EU) policies, particularly regarding the Digital Services Tax (DST) and various/frequent regulatory actions against U.S. Big Tech companies, have been a focal point of transatlantic trade tensions in 2025. His administration views these measures as discriminatory and a form of “overseas extortion” targeting American firms, prompting threats of retaliatory tariffs and other trade measures.  Trump often alleges that EU judges are biased against US companies and thus there is no rule of law in the EU for US companies, often imposing exorbitant fines of billions of dollars.

While the EU as a whole does not impose a bloc-wide DST, several EU member states (e.g., France, Italy, Spain, and Austria) have implemented national DSTs, which Trump has criticized as unfair trade barriers. These taxes target large tech companies—predominantly U.S.-based firms like Amazon, Google, Apple, and Meta—with significant revenue from digital services (e.g., online advertising, marketplaces, social media, and user data sales). Trump’s specific reservations include:

·         Discrimination Against U.S. Companies: Trump argues that DSTs disproportionately target U.S. tech giants due to their dominance in digital markets, calling them a “form of taxation” and “extortion.” For example, France’s 3% DST applies to companies with global revenues above €750 million and €25 million in France, affecting firms like Google and Meta but fewer European companies.

·         Violation of U.S. Sovereignty: A February 21, 2025, presidential memorandum titled “Defending American Companies and Innovators from Overseas Extortion and Unfair Fines and Penalties” accuses countries with DSTs (including Austria, France, Italy, Spain, and the UK) of violating U.S. economic and national security interests by taxing American firms’ profits earned abroad. Trump claims these taxes undermine U.S. sovereignty by imposing “extraterritorial authority.”

·         Retroactive Taxation: Trump has criticized retroactive DSTs, such as Canada’s (now rescinded) 3% DST, which applied to revenues from 2022, costing U.S. firms an estimated $2 billion. Trump suggested Canada was “copying the EU”. This rhetoric extends to EU member states’ DSTs, which he views as similarly punitive.

·         Economic Impact on U.S. Firms: The White House, supported by U.S. tech lobbyists, argues DSTs reduce the competitiveness of American companies by taxing revenues rather than profits, unlike traditional corporate taxes. For instance, the UK’s 2% DST, which raised £800 million annually, was seen as primarily targeting U.S. firms, though new data shows 40% of liable companies are non-U.S.-based (e.g., China’s ByteDance, Singapore’s Shein).

Context and EU Response:

The EU itself abandoned plans for a bloc-wide DST in 2018 due to opposition from member states like Ireland and Luxembourg, which benefit from low-tax regimes for tech firms. Instead, individual EU countries implemented their DSTs, prompting Trump’s ire. In July 2025, the European Commission dropped a renewed DST proposal for its 2028 budget to avoid escalating trade tensions with the U.S., a move seen as a concession to Trump.

EU officials, including Commissioner Henna Virkkunen, insist their regulations, including DSTs, are not anti-American but aim to ensure fair taxation of digital revenues generated in their markets. They argue DSTs address tax avoidance by tech giants who route profits through low-tax jurisdictions like Ireland or the Netherlands. Trump’s withdrawal from the OECD global tax deal in January 2025, which aimed to standardize digital taxation, has further emboldened his opposition to DSTs, viewing them as unilateral attacks on U.S. firms.

Trump’s Concerns About EU Civil Cases and Regulations Against U.S. Big Techs

Trump’s administration has also targeted the EU’s Digital Markets Act (DMA) and Digital Services Act (DSA), which regulate large tech platforms, as well as high-profile fines and investigations against U.S. tech companies. These measures are seen as additional non-tariff barriers unfairly targeting American firms:

·         Digital Markets Act (DMA): The DMA, effective since 2022, regulates “gatekeeper” platforms (e.g., Apple, Meta, Google, Amazon) with significant market power, imposing rules like prohibiting data combination across services and mandating app store access for competitors. Trump and U.S. tech leaders, including Meta’s Mark Zuckerberg and FTC Chair Andrew Ferguson, argue the DMA unfairly targets U.S. firms, as most gatekeepers are American.

·         In 2025, the EU issued fines under the DMA of ~ €500 million against Apple and €200 million against Meta for non-compliance (e.g., Apple’s anti-steering rules preventing developers from directing users to alternative payment systems). These fines, alongside investigations into Google’s vertical search and app store practices, were labeled by Trump as “taxes on American companies.”

·         Ferguson called the DMA a “form of taxing American companies” not tied to their conduct, echoing Trump’s view that it stifles innovation and protects European competitors.

Digital Services Act (DSA): The DSA, governing content moderation since 2023, requires platforms to address illegal content and allows users to appeal moderation decisions. Trump’s administration, including FCC Chairman Brendan Carr, criticizes the DSA for restricting free speech and imposing “burdensome” regulations on U.S. firms like X, Meta, and Google. Investigations under the DSA targeting X, Facebook, and Instagram for content moderation failures carry potential fines of up to 6% of global revenue, further fueling Trump’s narrative of “overseas extortion”.

Major EU Fines and Cases:

·         Apple: In September 2024, the EU’s top court ordered Apple to pay €13 billion ($14 billion) in back taxes to Ireland, ruling that its tax deal constituted illegal state aid. Apple also faced a €500 million DMA fine in 2025 and three ongoing DMA probes, including one on anti-steering rules.

·         Google: The EU upheld a €2.4 billion ($2.7 billion) antitrust fine in 2024 and continues two DMA investigations into its search and app store practices.

·         Meta: Fined €800 million ($840 million) in November 2024 for antitrust violations and €200 million in 2025 for DMA breaches, with an ongoing probe into its “pay-or-consent” model.

·         Trump called these fines a “form of taxation” during a January 2025 World Economic Forum address, arguing they unfairly target American companies while European firms face lighter scrutiny.

Data Privacy and Other Regulations: Trump’s memorandum also criticizes EU restrictions on cross-border data flows, such as France’s “trusted cloud” initiative, which favors providers outside U.S. legal jurisdiction. He claims these rules, alongside the EU’s AI Act, limit U.S. tech competitiveness. The collapse of the EU-U.S. Data Privacy Framework (DPF) in 2025, after Trump ordered resignations from the Privacy and Civil Liberties Oversight Board, has further strained transatlantic digital cooperation.

EU’s Defense: EU Commissioners Teresa Ribera and Henna Virkkunen emphasize that the DMA and DSA apply equally to all companies meeting revenue and user thresholds, not just U.S. firms. They argue these laws promote competition and consumer safety, not protectionism. The EU has vowed to enforce its regulations “swiftly and decisively” against U.S. tariff threats, with tools like the Anti-Coercion Instrument (ACI) to counter economic coercion.

Connection to U.S.-EU Trade Tensions and Trump Tariffs: Trump’s reservations about DSTs and EU tech regulations are central to his broader trade war strategy, which includes:

·         A 15-20% minimum tariff on EU goods, with a 30% tariff threat effective August 1, 2025, partly justified by perceived unfair treatment of U.S. tech firms.

·         The February 2025 memorandum explicitly links DSTs, DMA, and DSA to potential tariffs, framing them as non-tariff barriers harming U.S. economic interests.

·         Canada’s rescission of its DST in June 2025, after Trump halted trade talks, is seen as a precedent for pressuring EU countries to drop or modify DSTs. White House economic adviser Kevin Hassett suggested other countries, including EU members, may face similar pressure.

EU and Member State Responses:

·         The EU dropped its bloc-wide DST proposal in July 2025 to avoid escalating tariffs, but individual member states like France and Italy continue their DSTs, risking U.S. retaliation.

·         The UK, under Prime Minister Keir Starmer, offered to reduce its 2% DST rate and broaden its scope to include non-U.S. firms (e.g., China’s TikTok) to secure tariff exemptions, raising £800 million annually but facing U.S. criticism for targeting American companies.

·         The EU insists its tech regulations are not part of trade negotiations, rejecting a draft U.S. proposal to pause DMA enforcement.

Critical Perspective:

·         Mischaracterization of DSTs and Regulations: Trump’s claim that DSTs and EU regulations are tariffs or discriminatory is misleading. DSTs target revenue from digital services regardless of company origin, and the DMA/DSA apply to any firm meeting size thresholds (e.g., ByteDance, a Chinese firm, is also a DMA gatekeeper). Data from the UK shows 40% of DST-liable firms are non-U.S.-based, undermining Trump’s narrative.

·         Economic Motivations: Trump’s stance aligns with lobbying from U.S. tech CEOs like Mark Zuckerberg, Elon Musk, and Tim Cook, who seek to protect profits from EU fines and taxes. This marks a shift from traditional tariff policies (protecting domestic production) to defending corporate profits, potentially at the expense of broader trade relations.

·         Trade War Risks: Trump’s tariff threats (e.g., 20-30% on EU goods) and focus on tech regulations risk escalating a transatlantic trade war, with the EU preparing retaliatory measures on €21 billion of U.S. imports, potentially expanding to €84 billion. This could raise U.S. consumer prices and push the EU toward recession; i.e., we may see a synchronized stagflation on both sides of the Atlantic.

Potential EU retaliation against Trump’s higher tariffs threats

The European Union is reportedly preparing a list of potential tariffs targeting U.S. services as part of a broader retaliation strategy against President Trump’s bellicose trade policies. The European Commission is drafting countermeasures that could include tariffs on American services such as digital platforms, financial services, and tech-related sectors, alongside possible export controls. This move comes in response to Trump’s threat of a 20-30% tariff on EU goods starting August 1, 2025, following earlier U.S. tariffs, including a 20% levy on EU imports and 25% duties on steel, aluminum, and cars.

The EU’s proposed measures, which could affect €72-95 billion ($84-107 billion) of U.S. imports, aim to rebalance trade and protect EU interests if negotiations with the U.S. fail. The Commission has launched public consultations to finalize the list, with a focus on services to leverage the U.S.’s significant services trade surplus with the EU (€109 billion deficit for the EU in 2023). EU leaders, including Trade Commissioner Maroš Šefčovič, emphasize a preference for negotiation but are ready to implement these countermeasures if no deal is reached by the August deadline.

Conclusion

Trump’s reservations about EU DSTs and civil cases against U.S. Big Tech stem from his view that they unfairly target American companies, violate U.S. sovereignty, and justify retaliatory tariffs. His February 2025 memorandum and subsequent actions, like halting Canada’s DST, signal a broader strategy to pressure the EU and its member states to scale back DSTs, DMA, and DSA enforcement. The EU maintains that its laws are non-discriminatory and essential for competition and consumer protection, while preparing countermeasures against U.S. tariffs. The conflation of DSTs and regulations with tariffs, similar to Trump’s mischaracterization of EU VAT or India’s IGST, oversimplifies complex tax and regulatory frameworks, risking economic disruption on both sides.

Overall, an all-out trade war between the US and EU would be negative for both as both export to almost 22-23% of their overall export to each other, but this may be the worst-case scenario. As a base case scenario, Trump may eventually impose 20% on EU goods, 10% as best case and 30% as worst case. Assuming base case, i.e., 20% tariffs on EU, the overall, weighted average US tariffs should be around 23%.

Even if Trump continues his higher reciprocal tariffs ~20% on average, the net weighted average US tariffs would be around 15% including 25% sectoral tariffs on metals, automobiles, chips, and potential pharmaceuticals. Thus, if we adjust ~3% pre-Trump 2.0 era average tariffs, the net increase of US tariffs may be around 12%, which could be borne equally ~4% by all the concerned stakeholders; i.e., US importers/retailers/producers, US consumers and also may be by global exporters to retain their US market share. Underlying currency (FX) adjustments may also absorb the full net impact alone; e.g., USDCNY is now hovering around 7.00-7.15 and may easily go around 7.35-7.50 in the coming months, equivalent to 4-5% additional; Trump tariffs cost adjustments.

But this narrative holds good as long as Trump keeps his final tariffs within a reasonable range without affecting economic activities too much. And Trump also has to finalize his tariffs strategy/trajectory for the Fed to understand the overall impact on the economy, including inflation and employment. If Trump continues to linger his tariff & trade war beyond August 2025, it may cause more uncertainty for the Fed and other stakeholders.

Also, unlike April, Wall Street is relatively calm this time despite Trump's August tariff threats, as the fine print shows net effective average tariffs ~25% vs earlier 28%. And Trump may soon withdraw the Fentanyl levy of 20% on China and reciprocal tariffs of 20% on the EU to bring 10% basic tariffs for both. Trump's effective tariffs on Canada are now ~9.50% and Mexico ~13.75% after adjusting USMCA compliant goods at 0% and Canadian energy & Potash at10%-far lower than the headline suggests; only 10% Canadian goods are facing higher tariffs of 60% and ~25% Mexican goods are facing 55% tariffs. EU, China, Mexico, and Canada together contribute ~60% of US imports.

Even if Trump continues his higher reciprocal tariffs ~20% on average, the net weighted average US tariffs would be around 15% including 25% sectoral tariffs on metals, automobiles, chips, and potential pharmaceuticals. Thus, if we adjust ~3% pre-Trump 2.0 era average tariffs, the net increase of US tariffs may be around 12%, which could be borne equally ~4% by all the concerned stakeholders; i.e., US importers/retailers/producers, US consumers and also may be by global exporters to retain their US market share. Underlying currency (FX) adjustments may also absorb the full net impact alone; e.g., USDCNY is now hovering around 7.00-7.15 and may easily go around 7.35-7.50 in the coming months, equivalent to 4-5% additional; Trump tariffs cost adjustments.

But this narrative holds good as long as Trump keeps his final tariffs within a reasonable range without affecting economic activities too much. And Trump also has to finalize his tariffs strategy/trajectory for the Fed to understand the overall impact on the economy, including inflation and employment. If Trump continues to linger his tariff & trade war beyond August 2025, it may cause more uncertainty for the Fed and other stakeholders.

Overall, despite Trump’s new tariff threats, Wall Street is steady, hovering around life lifetime high as:

·         Fine prints of import data show actual effective tariffs of ~6% vs earlier 3% in H1CY25; thus, it’s not showing big in the US inflation data.

·         The market believes that Trump will soon withdraw Fentanyl on China and impose reciprocal 20% tariffs on  the EU, scaling back tariffs to 10% base levels; but Trump may also keep the EU final tariffs at 20% vs the present 10%

·         The effective weighted average tariffs on Mexican and Canadian goods are now ~13.75% and 9.50% despite the big Trump tariff headline.

·         Overall, Trump may keep average effective rates ~20% for the EU, 10% for China, 13.75% for Mexico, and 9.50% for Canada-contributing ~60% of US imports.

·         If Trump keeps ~20% average tariffs on rest 40% from rest of the world, overall effective tariffs may be ~15% vs 3% prior, which may not be a big issue as it would be equally divided between US importers, US consumers, and may also be global exporters.

·         But if Trump keeps 15-20% average tariffs on top five exporters (China, EU, Mexico, Canada and Japan) and 20% on rest of the world, effective weighted average tariffs should be around 18-22%, which may create some issues for both Wall Street (US importers/corporates/producers/retailers), Main Street (US consumers) and also Global Street (global exporters).

·         As per Trump admin projections about potential tariffs revenue of ~ $300B per year on average on ~$3T US imports per year, implying 10% weighted average US tariffs from 2025-2035

Market Impact

Wall Street Futures stumbled mid-US session Friday, July 18, 2025, as a knee-jerk reaction soon after the FT report headline of Trump’s insistence of minimum 15-20% tariffs on EU goods against 10% market expectations and a 20-30% Trump threat (April-August). But Wall Street eventually recovered to close almost flat as the market is still assuming it as a part of Trump’s hardball negotiation tactics and actual effective tariffs for H1QCY25 are only around 6%. The S&P 500 and Nasdaq 100 finished mostly muted near their records, while the Dow Jones dropped 142 points, pressured by a 2.2%, dragged by American Express. On the corporate front, Netflix tumbled on subdued/below expected guidance and lower USD despite earnings beat.

On Friday, Wall Street was boosted by utilities, consumer discretionary, real estate, materials, and financials to some extent, while dragged by energy (lower oil), healthcare, consumer staples, communication services, industrials, and techs. For the week, the S&P 500 and Nasdaq rose 0.5% and 1.4%, respectively, while the Dow ended slightly lower.

Oil slid on growing concerns of a US-EU trade war and a stagflation-like scenario, higher OPEC+ production, and a bearish inventory report. Gold slips on less dovish Fed talks and the fact that Governor Waller, advocating for a 25 bps rate cut on July 30, is in the minority camp. Fed may not cut before September.

Weekly 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 23300/23600*-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: 6300) now has to sustain over 6450-6500 for a further rally to 6600/7000-7500/8300 in the coming days; otherwise, sustaining below 6375/6300-6250/6200, 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.

 

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