Trump's recent tariff announcements cast a shadow over the celebratory atmosphere
The world of trade and finance is abuzz with the latest announcement from President Trump, who has imposed new tariffs on about 70 countries starting from August 1, 2025. These tariffs, ranging from 10% to over 40%, aim to reduce the U.S. goods trade deficit and create more balanced bilateral trade relationships (1, 3, 4).
The potential impacts on international trade and global markets are significant.
Increased Costs and Market Disruptions
Tariffs raise import costs for U.S. businesses and consumers, potentially reducing profit margins and increasing prices on imported goods. This could lead to disruptions in supply chains and shifts in trade flows as businesses seek alternatives to circumvent high tariffs, including allegations of transshipment to evade duties (3).
Negotiation Leverage and Trade Deals
The Trump administration states that the tariffs are part of a strategy to incentivize other countries to lower their own tariff rates and eliminate non-tariff barriers, with some progress reported in talks with Japan, Korea, the EU, and India. However, negotiations remain complex, with ongoing uncertainty about achieving broad trade agreements soon (1, 2).
Global Economic Growth Risks
JPMorgan analysis estimates that sustained tariffs could reduce global GDP by approximately 1%, reflecting direct and indirect impacts on trade volumes and economic activity worldwide. While U.S.-centric, the trade conflict effects would ripple globally, affecting exporters to the U.S. and overall market sentiment (2).
Market Volatility
Investor uncertainty around ongoing trade negotiations, combined with political controversies (such as Trump’s criticism of the Federal Reserve), has contributed to volatile equity markets in the U.S., with cautious forecasts for market performance pending resolution of trade conflicts (2).
Meanwhile, the U.S. economy has been performing well, with a growth rate of 3% in the second quarter. However, August is expected to be a less comfortable month, and a cut in interest rates could ensure the U.S. boom continues a while longer. The US federal budget deficit is currently running at 6% of national output.
The tariffs are expected to cause significant disruption, with countries like Switzerland, South Africa, and India facing levies of 39%, 30%, and 25% respectively. The UK, however, may benefit from the tariffs due to the favorable deal negotiated.
The housing market has gone soft in many areas, with worries about the US economy causing market wobbles and fragile consumer sentiment. The Bank of England is widely expected to reduce interest rates on Thursday, while the Federal Reserve did not move on interest rates last week.
Shares in the UK remain solid value compared to US markets, despite the announcement of the tariffs causing Amazon's share price to fall by more than 7%. Trade negotiations between the US and the EU were progressing, albeit with some dissatisfaction from businesses on the Continent. The announcement of the tariffs caused Amazon's share price to fall by more than 7%.
In summary, Trump's tariffs seek to rebalance trade but risk higher costs for U.S. importers, potential retaliation, and global economic slowdown. Negotiation prospects hinge on continued bilateral discussions, with some agreements made but overall uncertainty persisting in achieving comprehensive trade deals soon.
Investors might find opportunities in adjusting their portfolios to account for potential market volatility resulting from the imposed tariffs and ongoing trade negotiations (1, 2, 5). On the other hand, some businesses may look to diversify their finance options, including seeking mortgages or alternative investments to manage increased costs associated with tariffs and potential market disruptions (3, 4, 5).
