July 2025 Brief
USA vs. Everybody Else
“No one really knows how the game is played/the art of the trade/how the sausage gets made.” – Hamilton
Tariff war 2.0 is right around the corner; on August 1st, blanket tariffs on imports from at least 14 countries are set to take place absent new trade deals. Markets are starting to get a bit worried that this will play out like April’s Liberation Day announcements on 4/2. Back in April, the S&P 500 fell over -11% in 3 days before a 90-day reprieve for negotiation was announced. We are back into a similar situation with August 1st now the deadline to watch and many proposed tariff rates actually higher than the 4/2 initial rates.
Markets have yet to sell off in anticipation of the new tariffs and are not pricing in the full implementation of maximum rates on 8/1. The S&P 500 and Nasdaq both recently hit new highs, with the S&P 500 hitting 6,280.46 and the Nasdaq 20,630.66 on 7/10. This leads to concern that risks are mispriced if rates go forward. We have zero fully executed deals and only 2 deals which full framework was announced (Vietnam and the UK). 4 of our top 5 trading partners remain unfinalized with large implications for the costs of goods and trade flows. This leaves markets vulnerable to downside if tariff hikes go forward unchecked.
The EU is facing a 30% tariff (up from 20% 4/2) along with Mexico at 30% and Canada at 35%, though USMCA goods would likely be exempted creating a narrower scope for higher tariffs for both MX and CAN. That is one area to watch – what potentially is carved out and exempted vs. what would face the headline tariff rate. But it’s not just country specific; metals are also a focus with a 50% copper tariff being proposed which would cover refined metal as well as raw materials. Refined copper, the largest component of copper imports, is used for electronic goods, construction, autos, and our electric grid. The US can only produce about 50% of its copper needs domestically and building or expanding mines takes years. Input costs change dramatically with copper tariffs.
So now we wait again. Markets are currently betting on the TACO trade (Trump-Always-Chickens-Out) and that negotiations will get done, even though the 90-day reprieve did not yield much success. The muted market reaction may become more profound as we get closer to August 1st if no deals are made, though investors will likely follow the playbook that it will all turn out fine and these large tariffs are just a negotiation point and not an actual, lasting rate. This sanguine attitude may end up biting hard and causing some large market dislocations if the high rates are implemented and stick around. We preach caution in the near term, and to not panic if we see tariff induced selloffs. Now is the time to prepare yourself and your portfolio, not August 1st.