As the trade deadline passes, the only certainty is more uncertainty

The July 9 deadline has come and gone with few tangible results to resolve disputes with America’s trade partners in place. The only deals that had been completed a week before the deadline were with the United Kingdom and Vietnam, and the U.S. had negotiated a tentative truce with China in May.  

As of July 9, no new deals were announced this week. 

Treasury Secretary Scott Bessent previously indicated that the administration is focusing on 18 countries that account for 95 percent of the U.S. trade deficit.  As for countries that will receive letters, he said in a CNN interview on Sunday that countries that fail to reach trade agreements by August 1 will “boomerang back” to April 2 levels. 

President Trump subsequently announced on Monday that he will impose tariffs of 25 percent on goods from Japan and South Korea that will go into effect on Aug. 1 if a deal has not been consummated by then. Twelve other countries also received pending tariff hikes of 25-40 percent that were close to the rates announced April 2.  

On Thursday, Trump threatened Canada with 35 percent tariffs and floated higher global rates of 15-20 percent.

Another batch went out on July 9, the most noteworthy being a possible 50 percent tariff on Brazil that cited a “witch hunt” against former president, Jair Bolsonaro. 

While the trade negotiations have focused on the reciprocal tariffs, one impediment to striking deals are existing and pending product tariffs. 

Trump said that the 25 percent rates on Japan and South Korea did not include any sectoral-specific tariffs that the administration had or would implement. Both Japan and South Korea are major auto exporters and also face tariffs on steel, where the tariff rates are 25 percent and 50 percent, respectively. 

In a note to clients, Andy Laperierre of Piper Sandler points out that, if fully implemented, sectoral tariffs could apply to over 40 percent of U.S. imports. The Financial Times reports that people familiar with the talks cited the poor visibility of possible new sectoral tariffs on pharmaceuticals, semiconductors and other goods as hindering discussions. 

Trump announced a 50 percent tariff on copper this week that becomes effective by Aug. 1, and he threatened duties on pharmaceuticals of up to 200 percent. 

The U.S. stock market’s response to this week’s announcements was tame compared with three months ago. One reason is that many investors have learned that Trump often does not follow through on his threats — the so-called "TACO" or “Trump Always Chickens Out” bet. 

Still, others wonder why he is adamant in taking on all of America’s trading partners, irrespective of their size and even those that run bilateral trade deficits with the U.S. 

My take is that Trump has strongly held views on tariffs dating back to the 1980s, and he will not back off until markets force his hand. 

One factor bolstering the stock market is the impact of tariffs on U.S. consumer prices has not been felt thus far. The main reason is that businesses stockpiled imported goods ahead of the April 2 “Liberation Day” announcement and they are currently being depleted.   

Surveys of manufacturers, service-oriented businesses and small businesses all point to price increases ahead. The Federal Reserve also expects they will become apparent soon, which is why it is keeping interest rates on hold. 

Meanwhile, the uncertainty associated with tariffs and the trade war is weighing on households and businesses alike. While no recession is in sight, it is contributing to a noticeable economic slowdown.    

The Economic Policy Uncertainty index created by Scott Baker, Nick Bloom and Steven Davis, for example, shows that it exceeds the 2008 financial crisis and rivals the COVID-19 pandemic. The methodology is primarily based on the frequency of news stories that discuss economic policy uncertainty.  

The heightened uncertainty was first apparent in surveys of consumer confidence, which plummeted ahead of President Trump’s April 2 announcement. 

This was accompanied by a slowdown in real personal consumption to 0.8 percent at an annual rate in the first quarter from a 2.4 percent increase in the fourth quarter of 2024. The softening continued into April and May, when consumption was slightly negative.   

The increased uncertainty also shows up in the way businesses are handling the labor force. There was a significant slowing in private sector jobs in the first half of this year, and the June jobs report was not as strong as the headline number suggests. 

The private sector added 74,000 jobs, the smallest gain in eight months, while the tally for the government sector was roughly the same, with the majority of hiring coming from state and local governments.  

U.S. businesses have been wary of laying off workers in the event the trade conflict is resolved.  At the same time, press accounts indicate that the outlook for college grads and other new hires is very challenging.   

The bright spot is business capital spending, which has been on an upward trend over the past four years. It is also expected to receive an added boost as a result of the provision in Trump’s budget bill that grants full expensing of spending on equipment and research and development. 

Still, the Financial Times notes that it has become increasingly challenging for businesses to make long-term decisions about supply chains. Many companies are resorting to holding strategies, while they stockpile imported goods in warehouses that allow importers to hold goods for up to five years.  

Uncertainty about tariffs is also contributing to reduced merger and acquisition activity so far this year. 

Amid all this, many investors still believe the worst is over, because the risk of a full-fledged trade war between the U.S. and China has lessened. 

The global trade conflict, however, has effectively ended the post-war international trade system that contributed to unparalleled economic prosperity. Meanwhile, there is no clarity on what will replace it and how countries will cope with the uncertainty.   

Nicholas Sargen, Ph.D., is an economic consultant for Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business. He has authored three books including, “Global Shocks: An Investment Guide for Turbulent Markets.“