Our weekly podcast by Kevin Lings

US tariff threats raise fresh uncertainty in global markets

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses President Trump’s extension of the deadline to 1 August to 20 countries to negotiate trade deals with the US or face tariffs of 30-40%. The threat raises various uncertainties: around the limited time to negotiate, what the final tariffs will be, implications of the tariff on copper, and contradictions in the threats he has made to various trading partners. Kevin analyses the muted market reaction and likely effect on US interest rates.

The focus areas during the week included

• The S&P 500 declined by a modest 0.3% after reaching another record high on Thursday. Year-to-date the S&P 500 is up 6.4%, and has gained almost 26% since the tariff-induced low on 8 April. Unfortunately, tariff news again dominated the headlines, although the market’s reaction was relatively muted compared with previous tariff announcements.

• In local currency terms, the STOXX Europe 600 ended the week up 1.1%, despite declining at the end of the week after President Trump said he would send a letter notifying the European Union of higher tariffs on its goods. Year-to-date the STOXX 600 is up 7.8%.

• The US government reached its debt ceiling in January 2025, which means that the budget deficits have been funded by drawing down cash balances and investments for the past six months. This heavily depleted the US Treasury’s general account. The newly-agreed tax and spending package, “The One Big Beautiful Bill Act” raised the debt ceiling by $5 trillion on 4 July, allowing the Treasury to issue new debt to fund deficits. Consequently, the US Treasury has auctioned $39 billion of 10-year government bonds and $65 billion of four-month Treasury bills, which were well-received by the market. Over the coming months, the US Treasury will look to replenish its general account. On Friday the yield on US 10-year government bonds rose from 4.35% to 4.43%, reflecting concerns that the recent increase in tariffs announced by Trump could push inflation higher than currently anticipated.

• Emerging market currencies lost 0.6% against the US dollar last week, which corresponded with a stronger dollar (up 0.7% against the euro week-on-week). Over the same period, the rand lost a more substantial 1.7% against the dollar, highlighting its vulnerability to evolving domestic political idiosyncratic risks. Emerging market currencies and the rand have been buoyed by dollar selling pressure for most of this year, gaining 7.8% and 4.8% respectively against the dollar in the year to date.

• On 7 July, Trump announced that the “reciprocal” tariffs that were scheduled to become effective on 9 July, following a 90-day pause, would be delayed until 1 August 2025. However, he sent “letters” to more than 20 countries outlining the tariff that would apply to each one on 1 August if they failed to reach a trade agreement with the US in July. The “letters” show these new tariffs are not very different from the tariffs announced on 2 April 2025 and mostly range from 20%-40%. (SA received a “letter” outlining a tariff of 30%.) Importantly, these letters appear to have included Japan, Canada and the EU, despite extensive discussions on their individual trade deals.

Other announcements on tariffs include:

• Trump announced a higher 35% tariff rate on Canada in response to ongoing complaints over fentanyl imports and Canada’s 400% tariff on US dairy products. The rate will come into force on 1 August and apply to goods not compliant with the USMCA trade agreement. It will also, apparently, stack on top of other sectoral tariffs on steel and aluminum, but energy-related products will remain at 10% (very confusing).

• On 2 July, Trump announced that a trade deal had been concluded with Vietnam at 20%. In other words, the US would impose a 20% duty on all imports from Vietnam, while in return Vietnam would impose no duties on imports from the US. A couple of days later, the press in Vietnam highlighted that the Vietnamese authorities were under the impression that they had concluded a trade deal at 11% and not 20%. It now seems that people in the Trump administration had done the deal at 11%, but Trump simply revised the agreement to 20% without any discussion with Vietnam.

• Trump has threatened a 50% tariff on goods imported from Brazil, unless legal proceedings against former President Bolsonaro are halted. The rationale for this tariff is simply bizarre and should scare anyone focused on the importance of democracy.

• Trump announced separately that countries aligning with certain policies of the BRICS bloc of developing countries would face an additional 10% tariff.

• Trump also announced his intention to raise tariffs on copper imports to 50%, effective from 1 August. The US produces just half of the copper it consumes each year, meaning that domestic industries using this metal in their production process would face steep increases in costs. Chile is by far the largest exporter of copper to the US, although Canada accounts for around 15% of imports.

• Finally, Trump warned that pharmaceutical tariffs could spike as high as 200% unless companies start producing these products in the US over the next 18 months.

• US weekly jobless claims fell again last week to 227 000 from a revised 232 000 claims in the prior week and below market expectations for claims of 235 000. In contrast, continuing claims, a measure of people receiving ongoing social benefits, continues to rise, reaching nearly two million last week, which is its highest level since late 2021. This is consistent with a more cautious approach to hiring, which may well reflect uncertainty in the corporate sector over the outlook for trade policy and the economy.

• The minutes of the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting held on 18 June 2025 indicated some members of the committee disagreed about the direction of monetary policy. While “most” policymakers said that they anticipated cutting rates later this year, two stated that they would be open to rate reductions as soon as late July, and others said that they did not anticipate cutting rates at all in 2025. The US equity market reflected little reaction to the FOMC minutes. While a rate cut at the end of July appears highly unlikely, a cut of 25 bps in September appears possible.

• SA’s manufacturing production in May 2025 rose by 2% m/m, after growing by 1.7% m/m in April. The performance in May was far better than market expectations for an increase of only 0.3% m/m. Over the past year, production was up 0.5%, which was also better than market expectations for a decline of 1.4%. Despite the improvement in April and May, manufacturing is currently around 5% below the level of output achieved prior to the start of Covid in 2020. The improvement in manufacturing activity in the first two months of Q2 2025 is obviously extremely welcome. It will help to offset the decline in Q1 2025 and boost the Q2 2025 GDP performance. However, it is not clear whether the uplift in April/May will be sustained.

• In China, the producer price index (PPI) fell by 3.6% y/y in June 2025, down from -3.3% in May and below market expectations for PPI to fall by -3.2% y/y. This is the 33rd consecutive month of factory deflation in China, as well as the biggest drop for producer prices in nearly two years. In contrast, the consumer price index unexpectedly rose by 0.1% y/y after declining on an annual basis for four consecutive months. The policy authorities in China are expected to introduce additional fiscal and monetary policy measures in the second half of 2025 to help lift the economy out of a persistent cycle of falling prices. Earlier in July, officials at a high-level economic meeting chaired by China’s President Xi Jinping pledged to crack down on “disorderly” low-price competition and phase out outdated industrial capacity.

• The Halifax Building Society said UK house prices stagnated in May, after falling 0.3% in April, when a tax break for first-time buyers expired. Year-on-year house prices rose 2.5% compared with 2.6% in the prior month. According to press reports, Finance Minister Rachel Reeves plans to launch a permanent mortgage guarantee scheme to help first-time buyers.