WeeklyWatch – The clock’s ticking on the tariff pause
8th July 2025
Stock Take
Trump delays tariffs once more
The nations that haven’t yet agreed on a trade deal with the US likely had an uncomfortable start to the week, with the 90-day pause in higher tariffs on US imports originally set to end tomorrow (9th July). However, last night the President officially pushed the deadline back, sharing letters with 14 world leaders warning of levies from 1st August.
He also set out plans for a 25% tax on products entering the country from Japan and South Korea, a 40% tariff on goods from Myanmar and Laos, a 36% tariff on goods from Thailand and Cambodia, a 35% tariff on goods from Serbia and Bangladesh, a 32% tariff on Indonesia, a 30% tariff on goods from South Africa and a 25% tariff on goods from Malaysia and Tunisia. But despite the threats, he suggested he would be open to further trade talks.
Currently, the only countries that have signed a trade agreement with the US are the UK and Vietnam. And despite the challenges in their relationship, China seems to be close to agreeing on a deal. Europe, on the other hand, are seemingly nowhere near to an agreement.
We’ve become accustomed to confusion being the norm, and it’s the same scenario here. On Sunday, Trump had announced that nations would either get a letter or have agreed on a trade deal by Wednesday this week. But Trump’s announcement was then followed up by the US Commerce Secretary, Howard Lutnick, who said that the tariffs won’t come into effect until 1st August – confirmed last night.
And in another contradictory action, last weekend Trump threatened to levy a 10% tariff on any country that is aligned with the BRICS group of nations (Brazil, Russia, India, China, South Africa, plus others) on the grounds that BRICS are ‘anti-American’.
Counting the cost
It’s been estimated by the International Monetary Fund that Trump’s tariff policies could decrease global economic growth by 0.5% next year. In the short term, higher import costs could increase inflation, which will put a squeeze on US consumers. The likely impact this would have on growth will also create a negative backdrop for US treasuries.
With the tariffs not coming into effect until 1st August, the markets can feel a bit of relief. Additionally, it allows for more time for trade deals to be agreed on – or even for Trump to rescind some of his imposed tariffs.
But even as they faced further volatility, the S&P 500 and NASDAQ equity indices hit new record highs for a second week, delivering gains of 1.7% and 1.6% respectively in US dollar terms. This followed the publication of the current US job figures, which revealed that 147,000 were added in June, exceeding predictions by almost 40,000.
The apparent immunity to external chaos might make the US economy seem to be a bit like Teflon. But while US markets are showing their resilience, investors are almost certainly still feeling nervous, and this feeling is likely to continue. The Chief Investment Officer at St. James’s Place, Justin Onuekwusi, states:
“Despite the headlines, the relationship between politics and equity markets is more nuanced than often portrayed. While political events can trigger short-term market movements, it’s valuations that tend to drive performance over the long term. In this environment, staying focused on long-term goals is key.”
Labour enduring the highs and lows
Keir Starmer’s Labour Party have been in power for a whole year, and needless to say, they’ve faced some very challenging times – some in the last few weeks alone. Following rebellions from other MPs, there’s been a backdown on winter fuel payments and – more significantly – a big U-turn on welfare cuts. As a result, the likelihood of steep tax rises in the Autumn Budget has increased.
Chancellor Rachel Reeves was seen to be visibly upset in the House of Commons last week, giving rise to speculation that she was facing being sacked or considering resignation. Consequently, the value of the pound fell and costs of government borrowing significantly increased in the form of rising gilt yields. But once it was established that Reeves would be remaining as chancellor, there was a positive market reaction and bond prices rose while bond yields fell.
Fixed Income Strategist at St. James’s Place Greg Venizelos states that the rapid response of the market reaction seemed to respond out of uncertainty caused by the distress of the chancellor:
“Markets were wondering who would come next as a chancellor and that uncertainty can be unsettling. Ultimately it comes down to feedback on what government is doing. The government has been given the message that it needs to follow prudent actions, as the markets are watching.”
The Chancellor’s role is a challenging one. The job entails navigating a tough domestic backdrop as well as global volatility, such as the unexpected tariffs or economic slowdowns around the globe – all of which can influence the UK.
On a more positive note, the UK economy is likely to have grown during the second quarter despite battling significant economic pressures. There was a strong indicator of economic expansion in the June purchasing managers’ index, which showed a rise from 50.1 in May to 52 in June.
Even though increased taxes are likely on their way, the stability that comes from having a consistent government in place can help underpin the economy and, to an extent, support the value of bonds. Venizelos continues:
“On balance the factors may be pointing towards lower bond yields going forward. If the government brings in more taxes and there is an adverse impact on growth, then this could also push inflation lower. This would mean the Bank of England could have more room to cut rates, potentially bringing down the cost of government borrowing.”
And the reasons to be positive don’t end there. Onuekwusi states:
“The first year of this government has brought stability for markets and investors, underpinned by a clear, pro-growth tone and a willingness to engage with business.”
However, what unfolds over the next few months will be what really delivers the final verdict on Labour’s power reclaim for investors and businesses. He adds:
“Regulatory clarity from a growth-oriented government is essential as it gives businesses and consumers confidence and encourages long-term investing. Leveraging regulation to support better investment decisions, particularly in the UK market, could unlock capital that fuels sustainable growth. However, markets also value fiscal credibility. Any move away from fiscal rules risks unsettling bond investors, especially at a time when global debt is rising and uncertainty is weighing on bond markets. Staying the course on fiscal discipline will help reinforce market confidence.
“Investors want predictability on regulation, on tax and on the broader economic direction. Striking the right balance between reassurance and realism will be crucial. Recognising the role of the private sector in delivering growth will give the government more levers to pull. In a volatile global landscape, the UK has a real opportunity to lead by creating the certainty that investors and businesses need to plan and grow.”
Markets elsewhere
Over in Europe, there was a decrease of 0.4% for the MSCI Europe ex UK index (local currency). On our side of the Channel, the FTSE 100 added 0.3%. A small positive for consumer price inflation (CPI) in Europe may have encouraged some selling pressure while investors evaluated the future investment path for interest rates on the continent.
Across in Asia, the Nikkei 225 in Japan saw a fall of 0.9% (in yen) following a stall in US trade negotiations. China’s Shanghai Composite rose by 1.4% (local currency) with the latest round of Purchasing Manager Indices showcasing a mixed picture of the economy.
Wealth Check
The below is an edited version from St. James’s Place’s latest CIO Insight. Speak to us today to read the full version.
Red caps, price traps: the US concentration conundrum
What is happening with US politics? What will the volatility mean for investments and US holdings?
The geopolitical picture appears to change daily, much of it driven by decisions made by President Trump. Many of which he later retracts or reverses. Markets have moved up and down as announcements and then concessions are made. The breakout of the recent Iran conflict saw markets move less but they still reacted. This can all be unnerving for investors to say the least.
Red caps: Rising uncertainty and politics
Trump is nothing if not a populist. And behind many of his decisions lie the sentiment ‘Make America Great Again’. These are the words you see on many red baseball caps at Trump rallies and in media coverage, and which resonate with millions of US voters.
Take the tariffs, which have swung from one direction to another and back again. The aim of these is ostensibly to reduce any trade deficits between US and other countries. The thinking being US companies have been at a disadvantage compared to their counterparts in other part of the world, because of tariffs they face exporting goods and services. By imposing tariffs on foreign-produced imports to the US, it will make US-produced goods more attractive to US consumers – so the argument goes.
Yet while tariffs may temporarily reduce trade deficits, they also cause potential economic harm. While we don’t have unfettered confidence in anyone’s ability to make economic forecasts, The International Monetary Fund has estimated Trump’s tariffs could reduce global economic growth by 0.5% next year. Meanwhile, in the short term, the tariffs could push up costs for US consumers too, causing inflation to rise.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
With Trump’s 90-day pause on reciprocal tariffs due to end imminently (9th July), it looks highly likely that more volatility lies ahead. While the UK has secured some deals, it remains to be seen whether Europe will reach a beneficial trade deal with the US. All is still to play for where China is concerned too.
Meanwhile tensions remain high in the Middle East, despite a fragile ceasefire between Israel and Iran (at the time of writing). The Russian president has also taken advantage of the geopolitical focus being elsewhere to intensify attacks on Ukraine, with that war still very much ongoing.
Despite this gloomy backdrop, the latest US consumer sentiment figures show people are feeling slightly more positive about the economy. According to the University of Michigan’s consumer sentiment index published in June, Americans’ view of the economy has improved for the first time in six months.
Yet that is in the US. For the rest of the world, US policy is still raising questions – and uncertainty – for investors, as I see all too clearly when meeting with clients. What’s next? That’s the hard part. What will lead the markets up – or down – amid such unpredictability? And where does that leave us as investors?
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
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SJP Approved 07/07/2025