Market Resilience Challenged By Trump’s Weekend Tariff Salvo
The EU had been trying to conclude a tentative deal with the US to stave off higher tariffs.
Financial markets, which have shown increasing insensitivity to tariff threats from the US, will face a test at the Monday open after President Donald Trump declared a 30% rate for the European Union and Mexico effective Aug. 1.
Trump has ratcheted up trade measures, promising that more tariffs are coming to everyone from Canada to Brazil to Algeria and inviting trading partners to negotiate further. Despite warnings of complacency from the likes of JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, investors have so far behaved as if they’re counting on the US president to back down, having seen previous U-turns from his administration.
“Investors shouldn’t bank on Trump only bluffing with the 30% tariff threat on EU goods,” Brian Jacobsen, chief economist at Annex Wealth Management, wrote in an email. “That level of tariffs is punitive, but it likely hurts them more than the US, so the clock is ticking.”
Having set a record high in recent days, Bitcoin, which trades through the weekend, was little moved after the latest Trump missives. Currency markets will give another indication of the impact on global risk appetite when they resume trading at 5 a.m. Sydney time. The euro touched its strongest level against the dollar since 2021 this month as investors assessed the region’s relative growth prospects.
The EU had been trying to conclude a tentative deal with the US to stave off higher tariffs, but Trump’s letter punctured the recent optimism in Brussels. The US president did, however, leave an opening for additional adjustments.
“As usual, there are many conditions and clauses that can get these rates reduced,” Jacobsen wrote. “That’s probably why the market might not like the tariff talk, but it’s not panicking about it either.”
Financial markets have been struggling with how to price in the on-again, off-again tariff campaign instigated by Trump so far in his second term. While markets responded to the April 2 “Liberation Day” announcements by selling risk assets and even US Treasuries, those moves have now almost all reversed as the president delayed many of his threatened levies.
Even when Trump said that Aug. 1 would be a hard deadline, markets reacted as if that date was still negotiable. They did show some signs of caution Friday, when stocks fell from all-time highs as Trump intensified his trade offensive, and the dollar rallied for its best week since February.
In his letter to Mexican President Claudia Sheinbaum, Trump said the country has been “helping me secure the border,” but added that it wasn’t enough. The US doesn’t intend to apply the 30% rate to USMCA-compliant goods, according to a White House official.
