This is a new chapter in the tariff saga. On Monday, Donald Trump sent letters to 14 countries notifying them of the tax that will be applied to their exports to the United States. Amongst the major trading partners with whom negotiations were underway, Japan and South Korea will be subject to 25% tariffs.
Other countries are also targeted: 25% for Tunisia, Malaysia, and Kazakhstan; 30% for South Africa and Bosnia-Herzegovina; 32% for Indonesia; 35% for Serbia and Bangladesh; 36% for Cambodia and Thailand; and up to 40% for Laos and Myanmar.
Three months for nothing?
These tariffs are close to the levels announced on April 2, as shown by the compilation carried out by the MarketScreener macro research teams.
Source: MarketScreener
Yesterday, Donald Trump gave us a sort of sequel to "Liberation Day." We set very high standards and then say: come and negotiate with us if you don't want to pay so much. This time, we've simply added the form (everyone gets a nice letter), and there are only three weeks of negotiations instead of three months. And just like with movie sequels, we're always less enthusiastic than we were about the first installment.
Indeed, the market has reacted little to these announcements. Yesterday, US indices ended down less than 1%. This is a far cry from the violent reactions seen in early April. The reason for the very muted response is that the publication of these letters also comes with a postponement of the deadline. The tariffs will now come into effect on August 1 (rather than July 9). This leaves us with another three weeks of negotiations.
The letters sent also mention that "these tariffs may be modified, either upward or downward" and that the United States "will consider, perhaps, an adjustment to this letter" if the country concerned makes additional concessions (elimination of tariff and non-tariff barriers, etc.).
TACO trade
Investors are therefore still following the logic that has prevailed since April 9 (the date of the pause) and believe that Donald Trump will ultimately back down. The proof is that the tariffs were supposed to come into effect on July 9, and we now have another postponement.
The market seems convinced that "the end of the story" will be tariffs at acceptable levels. Because if Donald Trump sets high levels, the market downturn will force him to back down. That is what happened in early April. The market correction (particularly in the bond market) forced Donald Trump to announce a pause. The market now knows that it can make the US president back down.
At this stage, the market is therefore confident, and perhaps even complacent. Because fundamentally, the universal 10% seems to be a floor. Last week, the US concluded an agreement with Vietnam imposing 20% tariffs. There are also several sectoral tariffs in place (50% on steel and aluminum, 25% on automobiles), and more are sure to come (several investigations are underway under sections 232 and 301). Finally, this administration also needs a source of revenue to partially offset tax cuts.
The average level of customs duties could therefore be closer to 20% than 10%, a historically high level (not seen for a century). And it is difficult to imagine that this will not have an impact on inflation in the US and on global growth. Remember that at the beginning of the year (before Donald Trump took office), the average toll in the US was around 2.5%.
Staying in the game
In short, we have all been waiting for July 9 for three months. And in the end, we are no further ahead than we were in April. Only the UK and Vietnam have reached an agreement, but negotiations remain open for all other countries.
Given that it usually takes months or even years to conclude real trade agreements, this further delay comes as no real surprise. No one believed in the "90 agreements in 90 days" promised by the US administration.
We must now consider the possibility that the August 1 deadline will be delayed again. At the end of June, Treasury Secretary Scott Bessent mentioned Labor Day, September 1, as a possible deadline for the main trading partners. When asked by reporters at the White House on Monday evening about the August 1 deadline, Donald Trump himself said that it was "firm, but not 100% firm. If we are contacted with another approach, we will remain open."
We should therefore expect the tariff saga to continue. And that may be the goal in itself. From Donald Trump's point of view, the current situation is that he is at the center of the game and every country wants to negotiate with him. While everyone would like to see tariffs set once and for all, uncertainty lifted, and businesses able to organize themselves, he is reveling in this soap opera. This is a barely veiled objective, since the executive order signed yesterday, which postpones the entry into force of the tariffs until August 1, begins with the words: "Keeping America in the driver's seat."
