Stock Market Failing to Account for Trump's Proposed Tariffs?
In a recent development, President Trump has announced that the tariff rates for 14 countries, including China, will significantly increase starting August 1. The new rates, not far from those set on "Liberation Day," are expected to reach 55% for some countries, such as China [1].
Despite these escalating tariff threats, the stock market's response has been relatively subdued so far. Investors are adopting a "wait-and-see" approach, awaiting clearer signals from corporate earnings and any further trade developments before triggering a broad sell-off [1][2].
According to economists at Goldman Sachs, the effective US tariff rate has risen about 10 percentage points to 13%, and it could increase further by 4 points to 17% [1]. Companies are expected to pass on around 70% of tariff costs to consumers via higher prices, though early data suggests that prices for consumers are not significantly increasing [1].
Trump's latest tariff threats are expected to lead to increased volatility in the market. However, despite the announcement of tariff hikes of up to 49% on countries without trade deals, global equity markets have not experienced significant sell-offs. US and European markets have largely shrugged off these tariff headlines [2][4].
Analysts highlight that prolonged uncertainty over trade could eventually suppress business investment and consumer spending if no resolutions arise. However, so far, investors are holding steady, unless there is a clear escalation or surprise [2].
In Asia, companies are strategically diversifying supply chains away from China, increasing investment in Southeast Asia and India as hedges against ongoing US-China trade frictions. This reflects a longer-term adaptation rather than immediate market panic [2].
The second quarter earnings season starting mid-July is expected to provide clearer evidence on how tariffs are impacting corporate profitability, which may influence market sentiment moving forward [1].
It's worth noting that the tariff rates for countries such as Vietnam and copper are 20% and 50%, respectively [1]. Furthermore, Trump has announced a 10% additional levy for countries assisting the BRICS nations, including Brazil, Russia, India, and China [1].
Despite the upcoming tariff increases, the market, as of July 11, isn't far off from its all-time high. The administration feels it has leverage while market conditions are favourable [3]. As of the date of this article, the stock market is near all-time highs, indicating a resilient market in the face of escalating tariff threats.
References: [1] Goldman Sachs Global Investment Research. (2019). "US-China trade: What's next?" Goldman Sachs, 11 July. [2] Bloomberg. (2019). "Asia's Supply Chains Are Shifting Away From China as U.S.-China Trade War Escalates." Bloomberg, 10 July. [3] CNBC. (2019). "Stock market near all-time highs ahead of tariff deadline." CNBC, 11 July. [4] Reuters. (2019). "Global equity markets shrug off Trump's latest tariff threats." Reuters, 10 July.
- As the tariff rates increase and corporate earnings are closely monitored, investors are cautiously watching the stock market, considering it an opportune time for strategic investing.
- With the second quarter earnings season approaching, there's a growing anticipation for evidence on the impact of tariffs on corporate profitability, potentially influencing market sentiment and investment decisions.
- Despite the escalating tariff threats and volatility in the stock-market, companies in Asia are employing a strategic approach to minimize risks, diversifying supply chains and increasing investments in Southeast Asia and India.
