Financial markets are wobbling this week after President Trump extended his 90-day deadline for big trade deals over the weekend, following the imposition of unilateral tariffs on dozens of U.S. trading partners back in April.
As markets are reacting to changing White House policies, policies have been responding to fluctuations in the markets, and investors are seeing no end to the feedback loop in the near term.
Major stock indexes continued their jagged descent downward in morning trading Tuesday after tumbling Monday.
The Dow Jones Industrial Average fell more than 100 points in morning trading Tuesday after dipping about 400 points Monday. The S&P 500 was flat at noon after dropping 0.7 percent between Thursday and Monday.
The secretaries of the Commerce and Treasury departments pushed the deadline for trade deals to Aug. 1 over the weekend, past the initial Wednesday deadline announced in April.
But Trump has muddied the waters this week on the finality of that deadline, saying on Monday that it’s “not 100 percent firm,” then saying on Tuesday that “there will be no change” to the date.
“Markets are craving certainty,” Beacon Policy Advisors managing partner Stephen Myrow told The Hill.
Trump sent letters out to countries on Monday threatening both higher and lower tariffs than the original “reciprocal” tariffs announced in early April.
Threatened rates for Japan and Malaysia were higher, but rates for Kazakhstan, Laos, Myanmar, Tunisia, Bosnia and Herzegovina, Bangladesh, Serbia and Cambodia were lower.
Rates for South Korea, South Africa, Indonesia and Thailand were the same as before.
Since almost all the tariff letters either maintained or lowered the prospective rates, investors are seeing the letters as straight extensions of the deadline for deals, which are proving harder to effectuate than the White House initially projected.
Westwood Capital managing partner Dan Alpert labeled this a policy of “pretend and extend.”
“The tariff story [will keep going like this] as long as they figure out how to continue to pretend and extend, which is what they’re doing now,” he told The Hill. “They’re pretending that these tariffs are taking effect, but they never seem to take effect.”
Though the White House’s “reciprocal” tariffs are once again in abeyance, a number of tariffs have come into force, including a 10 percent general tariff, tariffs on steel and aluminum, and a 25 percent tariff on automobiles.
Fitch Ratings put the overall effective U.S. tariff level at 14.1 percent at the end of June.
While the import taxes, both promised and implemented, are functioning variously as negotiation and policy tools, investors say the auto tariffs are a real sticking point — particularly for U.S. trade relations with South Korea and Japan, which export huge numbers of cars to the U.S.
South Korea and Japan have been aggressively seeking exemptions from the auto tariffs and are not backing down from their position. Japanese exports saw an annual drop of 1.7 percent in May, the first drop in eight months.
“The car tariffs are fairly onerous on Japan,” Alpert said. “They have a pretty big beef.”
There’s also concern from U.S. businesses about Malaysian exports of semiconductors and electronics equipment — industries that have been the subject of big U.S. legislation in recent years.
“Particularly with semiconductors and consumer electronics, there is a meaningful trade relationship with Malaysia,” attorney Ted Murphy, leader of a trade unit at law firm Sidley Austin, told The Hill.
Trump also said Tuesday he would impose a 50 percent import tax on all imported copper, which Commerce Secretary Howard Lutnick said would take effect by August.
“So copper will be 50 percent, and the idea is to bring copper home, bring copper production home. Bring the ability to make copper, which is key to the industrial sector, back home to America. We need that kind of production in America, it’s important,” Lutnick said on CNBC.
Markets are responding to trade policy developments this week, but policies have also changed in response to markets during Trump’s trade war.
The original 90-day pause in the “reciprocal” tariffs that was extended over the weekend came after the bond market saw a spike in April that rattled economists in the White House.
“There’s no doubt that the Treasury market yesterday made it so that the decision — it was about time to move — was made with perhaps a little more urgency,” Kevin Hassett, head of the National Economic Council, said after the pause.
The Cato Institute’s Scott Lincicome commented Monday on Trump’s personal sensitivity to market conditions regarding ongoing trade talks.
“The President is deeply concerned about the market reaction to a worst-case US tariff scenario (i.e., full and immediate reciprocal tariffs and significant retaliation),” he wrote in a commentary.
While the White House has shown that its drive to implement tariffs is constrained by financial market performance — an idea encapsulated by the so-called TACO trade thesis, in which “Trump Always Chickens Out” from going full bore on tariffs — some are taking the policies more seriously.
“We think President Trump’s view of tariffs has evolved from his first term to his second term,” Murphy said. “Tariffs in the first term were really meant to drive negotiations. … Now, he believes tariffs are good in and of themselves.”
Myrow expressed a similar view.
“With the advent of the TACO trade thesis, it gives investors an excuse to blow off the uncertainty until proven otherwise, which is where they started,” he said. “They’re assuming away too much of the risk. … Uncertainty is not a bug, it’s a feature of this administration.”
The White House has announced deals with the United Kingdom, China and Vietnam so far, though the latter two are top-line agreements without any fine print.
U.S. industry reaction to the U.K. deal was mixed, with the aerospace sector giving it a thumbs-up and the auto sector giving it a thumbs-down.
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