Trump Trade Tariffs: Nomura Global Macro Research Chief Says Higher Inflation May Lead To Lower Rates

Market observers and experts are watching the developments on US President Donald Trump's latest actions regarding trade deals with various countries. A key anticipation is the de-escalation of tariffs and a theme coming in from expert commentary is the mix of political deadlines, economic indicators like inflation, and international negotiations that will play out.

Rob Subbaraman, chief economist and head of global markets research, Asia ex-Japan at Nomura, highlighted a prevalent market sentiment that the Aug. 1 deadline could be in a "classic Trump style escalate to de-escalate" scenario, potentially leading to lower tariffs.

Subbaraman cautions against excessive optimism, suggesting that markets might be getting a little too sanguine about de-escalation. He points out that with recent foreign policy wins and US equity markets near record highs, President Trump might play a harder hand than expected.

He also identified US inflation data as a potential game-changer. If US inflation begins to pick up by the deadline, it could bring on pressure on the Trump administration.

"This will make it hard for the Fed to cut rates, so inflation data might be the factor that brings Trump to ease off on the Tariffs," he said.

He also noted India's position, suggesting it might secure a deal with reciprocal tariffs closer to 10%, similar to the UK. This would be better than the 25-30% rates that other Asian countries like Korea, Japan, and Southeast Asia face.

In the medium term, India could benefit a lot with more investment and factories coming to the country, he added.

Echoing the view, Edward Yardeni, president of Yardeni Research, said that the big deadline is actually a domestic political one. The US President cannot afford a trade war that triggers a recession, he said.

"While the mid-term elections seem far off, the fact of the matter is the president can't afford to have a trade war that causes the country to go into recession. This would cost the Republicans the thin minorities that they have," he said.

He anticipates the trade issue might be behind us by the end of the summer, possibly through the issuance of less specific letters of understanding.

Yardeni also highlighted the financial angle fueling tariffs, stating that the President needs them to raise approximately $400 billion to cushion against a widening deficit. Despite this, there will be difficulty in striking trade deals with nations, noting that countries have their own interests and will not simply "roll-over".

He concludes that a clear trade deal, with all its intricate details, could realistically take two years, making the initial 90-day expectation "naive".