Investors Ignore Trump’s Latest Tariff Threats
Investors are dismissing the Trump administration’s latest tariff threats, widely anticipating delays in implementation and lower final rates, unlikely to spark severe inflation or hinder economic growth.
This assumption stems from Trump’s post-“Liberation Day” behavior.
On April 2, his announcement of steep reciprocal tariffs triggered a “mini bear market” in the S&P 500 (SP500) and mild bond market turbulence.
Subsequently, Trump introduced a 90-day negotiation period, reducing proposed tariffs to a 10% general rate with sector-specific adjustments. Markets expected multiple trade deals, with the 10% rate deemed acceptable to U.S. importers, avoiding significant inflation pressure.
This responsiveness birthed the “Trump put” or “TACO trade” (Trump Always Chickens Out), suggesting Trump avoids market-disrupting policies.
Thus, the financial market currently overlooks risks from the latest trade war escalation.
Latest Trade War Escalation
The 90-day negotiation period for all countries except China expired on July 9. Despite three theoretical agreements, only one holds substance. The U.K. deal is minor due to a U.S. trade surplus, while China’s focuses on rare earth export controls—a temporary truce.
The Vietnam deal stands out, setting a 20% baseline tariff (above 10%) and a 40% transshipment tariff to curb China, signaling ongoing escalation.
As July 9 neared, the Trump administration sent formal tariff notices to other nations, with rates near “Liberation Day” highs: 25% for Japan and Korea, 35% for Canada, 50% for Brazil, and 50% on copper imports.
All take effect August 1, though nations receiving notices or still negotiating (e.g., EU) have until then to secure “framework agreements” to avoid tariffs above 10%.
The TACO logic persists, with investors expecting another delay and eventual deals, minimizing tariff hikes, inflation, or stagnation.
Trump’s Policy Agenda
His focus is U.S. reindustrialization, especially in strategic security industries, requiring:
- Fiscal stimulus via the “Big Beautiful Bill” to incentivize domestic factory and equipment investment.
- High tariffs to force manufacturing back to the U.S., currently in motion.
Thus, tariffs are crucial, making an August 1 delay or rate cut unlikely.
But Trump May Be Serious This Time
The current situation differs from April. Trump now has a policy agenda tied to reelection promises needing funding.
In April, without fiscal backing and with the “Big Beautiful Bill” in planning, market turmoil from tariffs could have derailed it amid recession, rate spikes, or dollar weakening.
Now, with the bill passed, Trump can execute his agenda, tolerating short-term market pain if the economy recovers by late 2025 or early 2026. By mid-2026 elections, if his “reindustrialization + fiscal stimulus” plan succeeds, inflation may ease and growth rebound.
Implications for Investors
Investors still ignore the trade war escalation, expecting a repeat of April. But with the “Big Beautiful Bill” passed, Trump has fiscal tools to endure market volatility, increasing his tariff resolve.
I predict the August 1 deadline won’t shift, with rates near “Liberation Day” highs, potentially driving short-term inflation and growth curbs.
The S&P 500 (SPX/SPY) nears all-time highs, with a Shiller P/E over 38, signaling a bubble, fueled by AI themes like Nvidia (NVDA), ignoring macro shifts.
A major sell-off looms as the “TACO trade” fails and stagflation data emerges. From now to March 2026, expect a 35% drop, targeting 4,100 for SPY in 2025, assuming a 18x PE and earnings of $230 per share.