In a surprising turn of events, President Donald Trump has revived the trade war rhetoric of his second term by threatening to impose higher tariffs on key U.S. trading partners, including Japan and South Korea.
Shortly after noon on Monday, Trump released two letters directed at Japan and South Korea, indicating that he would impose a 25% tariff on goods, with even higher rates for items considered to have been transshipped through their territories.
The term “transshipping” refers to the process of transferring goods from one mode of transportation to another. This 25% rate mirrors the level Trump initially announced during his shock “Liberation Day” speech on April 2, which marked a significant shift in U.S. trade policy.
In an escalation of his trade war threats later that afternoon, Trump also announced potential duties of up to 40% on imports from Laos and Myanmar, while proposing tariffs of 30% on goods from South Africa and 25% on imports from Malaysia and Kazakhstan.
Trump plans to implement these tariffs under the International Emergency Economic Powers Act, a move that is currently under judicial review. However, the financial markets reacted negatively at the news, opening the week on a down note due to mixed signals from the White House regarding the significance of the July 9 deadline he previously set.
After Trump’s letters went live on Truth Social, the S&P 500 stock index experienced a decline, dropping as much as 1% at one point.
White House Press Secretary Karoline Leavitt addressed the situation during her regular press briefing later that afternoon, confirming that Trump would sign an executive order to extend the deadline from July 9 to August 1.
This extension signifies a troubling return to the uncertain and chaotic trade atmosphere that characterized the period surrounding Trump’s April 2 speech. At that time, the announcement of extreme import duties triggered one of the largest market sell-offs in history, with Trump frequently altering tariff levels in rapid succession.
Despite the initial chaos, the president had relented on immediately enforcing the drastic duties, leading to a gradual recovery in the stock markets.
Heading into this week’s developments, it appeared that the July 9 deadline was losing its relevance. When asked last Friday whether the U.S. would entertain flexibility regarding that date, Trump’s response was decidedly firm: “Not really.”
He added, “They’ll start to pay on August 1. The money will start to come into the United States on August 1, OK, in pretty much all cases.”
Further clarification came from Treasury Secretary Scott Bessent, who mentioned during a CNBC appearance that the president’s words indicated that other countries would not revert to the reciprocal rate until August 1. He suggested that an array of public announcements could be expected from the White House in the following two days but emphasized that Trump is prioritizing the quality of trade deals over the quantity, without divulging specifics on what those announcements might entail.
What lies ahead in the ongoing negotiations remains uncertain. White House spokesman Kush Desai succinctly conveyed the situation to The Wall Street Journal, stating that any significant decisions regarding trade would come directly from Trump himself.
As a result, all existing trade agreements and deadlines may remain fluid until the president makes a definitive statement.
Currently, Trump has limited new agreements in place with the U.K. and China, in addition to a brief note on a trade pact with Vietnam. On Sunday, he foreshadowed additional tariff threats in a social media post, indicating that a further 10% tariff would be applied to any country that aligns with trade policies set by the BRICS bloc, consisting of Brazil, Russia, China, and India.
The rationale behind this particular assertion was not immediately apparent. Nevertheless, on Wall Street, there are some analysts expressing optimism that the uncertainty surrounding the trade situation may not have as severe an impact on stock performance this time around.
In a note to clients, analysts from Capital Economics indicated, “Our base case remains that the uncertainty around tariffs won’t be enough on its own to bring the U.S. economy to a crashing halt. If so, it’s unlikely to be enough to dampen investors’ enthusiasm for U.S. equities.”
However, these analysts also acknowledged that the renewed tumult could pose challenges for officials at the Federal Reserve. They continue to advocate for maintaining high interest rates despite persistent demands from Trump for reductions. With rates already elevated, the anticipated rise in inflation stemming from the new import taxes could exacerbate borrowing costs for the federal government, businesses, and consumers alike.
Analysts highlighted that many Federal Reserve officials are likely hesitant to cut rates until the inflationary consequences of the tariffs become clearer, and they foresee little chance of rate cuts materializing this year.
image source from：nbcnews
