A rollercoaster week in trade saw a spate of new tariff rates issues by US president Donald Trump, as the 90-day reprieve given to trading partners came to an end. There was also new UK economic data, including a second month of economic contraction, and further Houthi attacks on commercial vessels in the Red Sea.
The big picture: The week saw Trump follow through on his reciprocal tariff threats, sending letters to trading partners informing them of new rates set to come into force on 1 August.
Letters addressed to the Philippines, Brunei, Moldova, Algeria, Libya, Iraq and Sri Lanka were shared earlier this week, they announced rates of between 25 and 30%.
At the start of the week, Trump announced that large trading partners Japan and South Korea will both face a new rate of 25%, while BRICS nation and South Africa, Africa’s biggest exporter, will face a new rate of 30%.
There was a stern warning for all BRICS nations from the US president on Monday, following an annual meeting in Brazil. In a Truth Social post, he wrote:
“Any Country aligning themselves with the Anti-American policies of BRICS, will be charged an ADDITIONAL 10% Tariff.”
In another politically motivated trade move, a 50% tariff rate was levied on Brazil, which Trump aligned with the country’s trial of former president Jair Bolsonaro.
“It is a witch hunt that should end IMMEDIATELY!”, he wrote in another social media missive shared on Wednesday (9 July).
Despite the flurry of tariffs levied and the threat posed to global trade, markets have been buoyed this week by the tariff deadline being met – if extended slightly – as planned.
A measure of short-term volatility within the US S&P 500 index fell to 16, below its average of 20, while the UK’s FTSE 100 index rose to an all-time high on the strength of diminished trade war fears.
Speaking to the Guardian, IG’s chief market analyst Chris Beauchamp said he believed the “market’s apparent indifference” to Trump’s tariff announcement could be chalked up to the fact “many now view such announcements as political posturing”.
It could be that Trump’s delayed a market slump, as well as new tariff implementation dates, until August.
Good week/Bad week: A good week for European Commission president, Ursula von der Leyen, who survived a no-confidence vote in European Parliament this week. Only 175 of 720 MEPs voted in favour of the motion, with 360 voting against. A total of 480 votes (two thirds) would have been needed for it to pass.
The vote was raised over concerns about transparency, after the EU refused to release text messages exchanged between von der Leyen and the head of Pfizer during negotiations over Covid 19 vaccines.
The FTSE may be buoyant but UK economic data is less rosy. The UK economy shrank by 0.1% in May, a second consecutive drop – one more makes a recession. The contraction was led by reduced production and construction, and follows a much stronger start to the year, with 0.7% growth over the course of Q1.
The figures spells more trouble for Labour’s economic plans, as growth is central to its fiscal planning. MHA economics adviser, Joe Nellis, told the FT that:
“This presents a challenge to the chancellor — her fiscal headroom remains limited by high levels of public borrowing and debt and her spending plans are heavily reliant on kick-starting the economy.”
How’s stat: 10%. That’s how much most UK firms could afford to see their earnings drop amid tariff challenges, according to the Bank of England’s (BoE) latest financial risk assessment.
However, it’s worth noting that while the BoE found that companies most exposed to Trump’s trade war only hold 30% of UK corporate debt, they do account for 60% of UK jobs – a notable concern amid an already weakening labour market.
Elsewhere, there’s predictions that tariffs will have a more damaging effect on UK industry, with Goldman Sachs expecting a 3% hit to UK industrial production.
Quote of the week: “The targeting of innocent mariners has shaken global shipping to its core. These aren’t military strikes; the Houthis have hit commercial vessels which supply the world. Lives have been lost, and this major trade route is even more dangerous now”.
Chartered Institute of Export & International Trade director general, Marco Forgione, on the resurgence of Houthi attacks on commercial shipping in the Red Sea and the deaths of three sailors.
The week in customs: Traders are reminded to make sure they’re prepared for the final Import Control System (ICS) 2 deadline of 1 September. By this date, ICS1 will be phased out and ICS2 data, and safety and security requirements will become mandatory across all modes of transport: air, maritime, road and rail.
Members can learn more about ICS2 changes from our Lunchtime Learning session on the topic and write-up.
What else we covered this week: Trump’s unexpected 50% tariff threats on copper imports sent prices surging. You can learn more in this week’s Commodity in Focus.
We covered the incidents and offered further expert analysis in our regular State of Freight feature.
Another sector set of US tariffs in pharma, with Trump threatening 200% after an initial grace period for firms to relocate manufacturing. The Daily Update spoke to experts to learn more about the UK sector’s exposure in this Trade Insights.
There was also a review of trade headlines from around the Pacific in this week’s Trade Digest, which covered nation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
True facts: It wasn’t just stock markets riding high this week. This week US chipmaker Nvidia became the first company to reach a US$4trn valuation.
The record follows a 40% increase in its stock value since May, when Trump began deescalating his trade war with China – including easing export restrictions on key goods, like Nvidia’s chips.
Although curbs on which models Nvidia can sell to China remain in places, continued demand in the US and Europe, along with recent deals in the Middle East are encouraging investors.
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