Stock markets in Asia experience a drop due to uncertainty surrounding U.S. tariffs, with oil prices also declining.
In a critical turn of events, President Donald Trump has set a deadline of July 9, 2025, for finalising several U.S. trade agreements. This deadline is linked to a 90-day tariff pause that was imposed in early April 2025, which is set to expire on that date. If deals are not finalized by then, tariff rates on imports from certain countries will surge, escalating trade tensions.
Key details include:
- **Tariff Resumption and Rates:** If agreements are not reached by July 9, tariffs will revert to higher country-specific rates starting midnight. These rates could be as high as 70% on imports from countries that fail to secure new deals. Additionally, a baseline 10% universal tariff has been in place since April 2025, which would be supplemented by these higher, country-specific rates.
- **Countries Involved:** The U.S. administration has sent letters to 12 nations presenting "take it or leave it" tariff offers. While some countries remain exempt from immediate tariff hikes, all face the risk of future increases if talks falter.
- **Trade Agreements in Progress:** Agreements reportedly near completion include deals with China, the U.K., and Vietnam, though many other negotiations remain confidential. President Trump indicated no intention to extend the July 9 deadline, heightening pressure on partners to finalize terms promptly.
- **Tariff Adjustments on Steel and Aluminum:** On June 3, 2025, Trump issued a proclamation adjusting tariff rates on steel and aluminum under Section 232, also amending previous executive actions. Some reciprocal tariffs on EU goods have been delayed but are scheduled to resume with significant duties ranging from 4.4% to 50% on various products, effective in mid to late 2025 and December 1, 2025.
Potential Impacts on Tariff Rates and Trade Tensions:
- The reimposition of high tariffs could sharply increase costs on billions of dollars of imports, which experts warn might fuel inflationary pressures within the U.S. economy. Forecasts suggest core inflation could rise to 3.7% in the latter half of 2025, potentially deterring interest rate cuts by the Federal Reserve and slowing economic growth.
- Unemployment could rise moderately due to these economic pressures, with an adverse scenario predicting up to 6.1% unemployment if tariffs are aggressively implemented under emergency powers.
- The threat of sharply increased tariffs is also likely to heighten trade tensions with affected countries, possibly undermining global trade relations and economic stability.
In the financial markets, the dollar has been undermined by investor concerns about Trump's tariff policy. The dollar index is languishing near four-year lows at 96.913. Gold slipped 0.3% to $3,324 an ounce, while the dollar dipped to 144.38 yen. The initial market reaction to the news was cautious, with S&P 500 futures and Nasdaq futures both easing 0.3%.
As the deadline approaches, the world watches closely to see how these trade negotiations will unfold and what impact they will have on global economies. The Federal Reserve has been kept from cutting rates due to these same concerns, and analysts at ANZ believe that the renewed escalation in trade tensions could intensify downside risks to U.S. growth and increase upside risks to inflation. The minutes of the Fed's last meeting may offer more insight into when members might resume easing. Meanwhile, the Reserve Bank of Australia is expected to cut its rates to 3.60 per cent at a meeting on Tuesday.
The impending resumption of high tariffs, scheduled to reach as high as 70%, could incur significant costs on imported goods, potentially causing inflationary pressures within the U.S. economy. This could potentially deter interest rate cuts by the Federal Reserve, thereby slowing economic growth.
The ongoing trade negotiations, particularly the finalization of agreements with China, the U.K., and Vietnam, have the potential to heighten trade tensions with involved countries, which could impact global trade relations and economic stability. Moreover, the threat of sharply increased tariffs is contributing to investor concerns about the dollar, causing the dollar index to languish near four-year lows, and gold prices to rise.
