Markets Close in on Another Trump Tariffs Deadline

Markets Close in on Another Trump Tariffs Deadline

Talking Points:

• An extended delay to the Liberation Day reciprocal tariffs is due to end on August 1st
• Markets have grown somewhat accustomed to delays and reversals on disruptive trade war policy
• Expectations of ongoing delays may find the market ill-prepared for a return of onerous tariffs on many US trade partners

Tariff Timeline: Using Market Performance to Gauge Expectations vs. Reality

As we arrive at the August 1st deadline for the enacting of President Trump’s much publicized tariffs, it’s worth a look at what has transpired in the market in the time between Trump’s original introduction of the so-called ‘reciprocal’ tariffs on April 2nd – in an event labeled ‘Liberation Day’ – and now.

Chart of the S&P 500 and Key Trade War Dates

Source: StoneX Market Intelligence

 

In the immediate aftermath of “Liberation Day” through the April 9 announcement, the S&P 500 saw a sharp decline followed by a sharp uptick in response to the policy U-turn allowing for a 90-day pause on tariff hikes for the negotiation of trade deals. These market movements in otherwise steady markets reveal what policy-driven volatility can amount to: dramatic sell-offs on surprise tariff actions followed by an equally sizable rebound when the burden is (at least temporarily) withdrawn.

As spring turned to summer updates and push-backs have been largely overlooked by the market as the return to record highs for benchmarks like the S&P 500 reflect the unflappable positive sentiment. This is less a full conviction that the everything will be idyllic – or even net positive – at the end of the saga; and instead, it likely reflects a complacency during a definitive “wait-and-see” period says StoneX Head of Global Content John Kicklighter.

“The markets seem to be buoyed more by an appetite for exposure made possible as we pass through the eye of the trade war hurricane,” Kicklighter remarked. “Though there have been more threats than resolutions, there seems to be an undercurrent of expectation that the worst-case scenario will always be deferred – even if the threat doesn’t fully go away.”

Looking ahead to August 1st and Beyond

Kicklighter believes that there are 3 general outcomes from the August 1st deadline:

1. Some countries with deals avoid tariffs while the remainder see the new, more severe tax levels kicks in the weeks since the deferment, there have been a few countries that have worked out agreements with the US including: Japan’s 15% cap; Vietnam’s 20%; Indonesia’s 19% and Philippines’ 19%. There are others deals supposedly close at hand including one for the European Union and India. But that leaves many other economies unaccounted for. “The markets are not pricing in the probability that some – perhaps many – economies are facing imminent and severe tariff rates,” Kicklighter said. “If the markets did see this as a viable threat, we likely wouldn’t be so ambitious as to have returned to record highs on major indices.”
2. The deadline for the tariffs to kick in are pushed back again, just like what happened on July 9th. Kicklighter believes that this is slightly less likely scenario to the preceding one. He suggests the administration is likely cognizant that this course of action would lessen the potency of mere tariff threats going forward – both with regards to markets and volatility and in negotiations with trade partners.
3. Lastly, the least likely option is that the US settles on deals with all its peers. This would require the Trump administration to be successful in striking what it considers equitable trade deals with many nations. Though this is highly unlikely given the White House’s verbiage, if it were to come to pass, Kicklighter says it would generally work to ‘justify’ the gains made over the preceding months – rather than provide the bases for significant recovery in a fundamentally discounted market.

Chart of the VIX Volatility Index and Key Deals

Source: StoneX Market Intelligence

As Kicklighter considers the tariffs, he has his doubts about their prospects for ultimately being beneficial for the U.S. economy.

“I don’t believe that the influx of tariff revenue for the US fully offsets – much less outpaces - the global economic pressure it implies. Generally speaking – and it’s difficult to measure – but the tariffs could be costly in terms of fractured and throttled trade relations and the collective growth globalization charged.”

One thing that is certain is the world will be eagerly awaiting what actually happens on August 1st and how the market’s collectively respond. What unfolds in the months that follow yet another high-profile deadline remains to be seen.

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---- Written by: Alex Mednick
---- Expert: John Kicklighter, Head of Global Content, StoneX