The dollar declined against foreign currencies, stocks in Asia and Europe broadly sold off, and S&P 500 futures were down 0.22% before the open in New York as investors began to realize that the fallout from the U.S. Supreme Court’s tariff decision, and President Trump’s reaction to it, is going to be more complex than traders initially thought. Goldman Sachs also reported that its in-house “Risk Appetite Indicator” had sunk back from its recent peak. In that context, investors fled—again—to the safe haven of gold, which rose 1.81% this morning and looked to be making an attempt at a new record high.
At first glance, ending the tariffs looked broadly good for stocks because it makes international trade easier and cheaper for companies. Unsurprisingly, the S&P 500 closed up 0.69% on Friday.
But after Trump said he would propose new tariffs of 10%, and then changed his mind and made it 15%, analysts began to realize that some of the things Trump might do next could be more extreme than his “Liberation Day” tariffs, and will certainly be more complex.
As UBS’s Paul Donovan put it, “Welcome back uncertainty.”
BNP analyst William Bratton published a research note summarising Trump’s options. “Some of these could be highly punitive,” he said:
- Section 122 of the 1974 Trade Act is only valid for the next 150 days and must then be extended by Congress. It is not applicable to agricultural; metals, minerals, chemicals, oil, gas, pharmaceuticals, aircraft, some electronics, and various automobiles.
- Section 301 tariffs “have no upper limit, have proved to be highly sticky once implemented (as with those imposed on China in 2018), and could, in theory, be applied to any country that does not agree to a trade agreement with the U.S. that embeds higher tariffs,” Bratton wrote.
- Section 232 tariffs also “have no upper limit and can be expanded in scope once implemented. Trump has already used this law to expand and raise the tariffs on multiple products – most notably on cars and car parts – and various Section 232 investigations are currently ongoing including into semiconductors and pharmaceuticals.”
Bratton argued that Asian companies will react by increasingly detaching themselves from U.S. trade. “We expect US trade policy … to become increasingly complex and more targeted resulting in a patchwork of tariff measures and trade agreements. … the global economy will continue to fragment with U.S. trade flows steadily becoming less important as Asian trade becomes increasingly more regional in nature,” he told clients.
The high court ruling—and Trump’s reaction to it—triggered dozens of countries to review whether they now have trade agreements with the U.S. or not.
“The European Parliament’s trade committee was due to approve the E.U.-U.S. deal on Tuesday but the committee’s chair, Bernd Lange, signaled that would likely be postponed as it seeks clarity on U.S. trade policy. India has also said that it will postpone talks with the U.S. scheduled for this week aimed at finalising their interim U.S. trade deal,” according to Peter Schaffrik and his team at RBC.
Here’s a snapshot of the markets this morning:
- S&P 500 futures were down 0.22% this morning. The index closed up 0.69% in its last session.
- STOXX Europe 600 was down 0.28% in early trading.
- The U.K.’s FTSE 100 was flat in early trading.
- Japan’s Nikkei 225 was down 1.12%.
- China’s CSI 300 is down 1.25%.
- The South Korea KOSPI was up 0.65%.
- India’s NIFTY 50 was down 0.52%.
- Bitcoin declined to $66.4K.
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