The markets seem to have been addicted to statements by US President Donald Trump for their dutiesignoring his new warnings for higher rates, of 20%-50%, to more than 20 US trade partners, with the latest recipients of these “final” being the European Union and Mexico yesterday.
This is a significant differentiation of markets in relation to what happened a few months ago, which encouraged Trump, as he meant to be implemented by the implementation of the duties to stimulate the American industry.
In his letter to the European Union yesterday, which he posted on Truth Social, he threatened 30% with a horizontal duties on European exports to the US – significantly higher than the 20% announced on April 2 – if no trade agreement was reached by August 1.
An agreement for which the US president is “photographing” the rewards he is calling for. “If you wish to open the closed to your USA to now and eliminate the tariff and non-tariff barriers to your trade and your policies we will perhaps consider an adaptation to this letter,” Trump wrote, limiting the expectations created for an impending deal.
For its part, European Commission President Ursula von der Laene replied that the imposition of 30% duties would distribute the necessary transatlantic supply chains and stressed that few economies in the world are as open and implemented fair commercial practices as the EU will continue to do so. Ensuring EU interests, “including proportionate countermeasures, if needed”.
When Trump announced on April 2 the so-called “payroll” duties of 10% -50% imposed on the US trade partners, US shares and dollar were plunged, 10-year-old US bond yields approached 5% and the price of gold were raised.
Trump suspended the highest tariff rates on April 9, maintaining a “basic” rate of 10%for most countries to enable bilateral trade agreements. The deadline expired last Wednesday, but the US, which estimated that 90 deals would reach 90 days, had reached a framework for a trade agreement with only two countries – Britain and Vietnam.
Seeing that the negotiations do not go as quickly as he and his associates believed, Trump had prepared the ground to give more time. At the beginning of the week, he signed the extension until August 1st of the deadline for the signing of trade agreements. At the same time, he sent letters to 14 countries and then to 9 other countries, warning that duties would increase from 20% to 50% if there were no agreements by the end of the month, thereby putting pressure on major US trade partners, such as Canada, Japan and South Korea.
The publication of these letters did not appear to affect the attitude of investors, who this time showed a “anesthesia” on duties. The stock markets rose, with the S&P 500 setting a new high record on Thursday, bond yields remained stable and Bitcoin set a new high record. On Friday – and after Trump had threatened Canada with 35% horizontal duties – Wall Street indicators suffered limited losses.
The version of some analysts about the “anesthesia” of markets is that Trump gave a new extension to the agreements and likely to give another. They even use the Taco acronym to describe that Trump always recedes (Trump always chickens out).
However, the complacency of markets may also be the result of their addiction to the prospect of new duties on duties, believing that they would not have the big impact they initially feared that they would have on economies and especially the American. The fact that so far there has not been an increase in inflation in the US, but on the contrary, it has fallen a little, and that GDP growth has slowed down but still positive, between 1% and 2%, has mitigated investors’ fears. The same is true of the course of the European economy, where recovery is expected to be slower than expected, close to 1%, but without any risk of recession.
The fact, however, that there has been no strong impact on economies so far does not mean that a barrage of higher duties will not exacerbate the difficulties they face. Fed officials have stopped cut interest rates since the beginning of the year, which remain above 4%, because they believe that duties will ultimately have inflationary impact and even more permanent, contrary to what Trump argues with the Fed’s intention of lowering interest rates.
There is no doubt that Trump will put other duties. It has already burdened their imports of cars and spare parts with 25%, and has also doubled the steel and aluminum duties at 50%. On August 1, it announced a 50% duty on copper imports and announced duties on medicinal products, which can reach 200%, as he said, after a transitional period of more than a year.
Source: RES-EIA