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Yahoo
an hour ago
- Yahoo
The TACO trade is backfiring on Wall Street as Trump seizes on stock market highs to charge ahead with tariffs
Markets previously brushed off tariff risks under the assumption that President Donald Trump would follow his earlier pattern and eventually retreat. That allowed stocks to reach new record-high territory, marking a stunning rebound from the collapse triggered by his 'Liberation Day' tariffs in April. But Trump is now pointing to those stock market highs as signs that his tariffs are being well received. Wall Street thought it had President Donald Trump all figured out on his trade war, but the past week has raised concerns that investors may be wrong. Markets had dismissed tariff risks under the assumption that Trump would follow an earlier pattern and back off, in what became known as the so-called TACO trade. That allowed stocks to reach new record-high territory recently, marking a stunning rebound from the collapse triggered by his 'Liberation Day' reciprocal tariffs in April. But Trump has seized on those very same stock market highs to justify pressing ahead with his aggressive tariff rates. 'I think the tariffs have been very well received. The stock market hit a new high today,' he told NBC News on Thursday. He also suggested a baseline rate of 15%-20%, higher than the current level of 10% across the board. That came as he continued to unveil letters to U.S. trading partners throughout the week, laying out tariff rates they will face by Aug. 1 if no trade deals are reached. On Saturday, he threatened the European Union and Mexico with 30% rates. While the letters are largely seen as a negotiating tactic, stocks have pulled back from their all-time highs as doubts about the TACO trade start to creep in. 'Markets appear to believe that Trump will again back down,' Capital Economics said in a note on Friday. 'We are not so sure.' For his part, Trump did not reimpose his reciprocal tariffs on Wednesday, when a 90-day pause was due to expire. But his new Aug. 1 timeline only offers a few more weeks of breathing room to reach trade deals that would avoid the high rates contained in his dozens of letters. Meanwhile, Trump is pressing ahead with sector-specific duties, announcing 50% tariffs on copper and warning that imported pharmaceuticals could face a 200% rate. For now, stocks are not experiencing a repeat of April's meltdown, when the S&P 500 crashed nearly 20% from its prior high to flirt with a bear market. The relatively muted reaction is presumably due to the TACO trade. 'But that creates a dangerous circularity, since the main reason Trump was forced to shelve his Liberation Day plans originally was because of the sell-off in not only the equity market but the Treasury market too,' Capital Economics said. 'Without that pressure, Trump may feel more emboldened to follow through this time, particularly since—up to now at least—tariffs appear to have had little impact on final consumer goods prices and claims the economy would be plunged into recession have been proven wrong.' JPMorgan CEO Jamie Dimon also warned that investors appear to be getting complacent about the risk of Trump tariffs, and UBS similarly flagged the 'paradox' between the TACO trade and Trump. Economists at Bank of America highlighted the market's failure to stage a revolt against Trump's new tariff blitz, calling it 'the game that never ends.' And as stocks ignore the latest shocks, consumer confidence is less likely to be affected, they added. But that also means the Trump administration has more incentives to re-escalate, since the marginal cost of doing so is low. 'The next question is then how much re-escalation risky assets are willing to tolerate before correcting lower and how much pain Trump would tolerate until de-escalation occurs as it happened in April,' BofA said. 'In other words, the game between Trump and the market is subject to multiple equilibria.' In other, other words, Trump and Wall Street could keep going around and around. This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
an hour ago
- Yahoo
Trump announces 30% tariffs against EU, Mexico to begin Aug. 1, rattling major US trading partners
BRIDGEWATER, N.J. (AP) — President Donald Trump on Saturday announced he's levying tariffs of 30% against the European Union and Mexico starting Aug. 1, a move that could cause massive upheaval between the United States and two of its biggest trade partners. Trump detailed the planned tariffs in letters posted to his social media account. They are part of an announcement blitz by Trump of new tariffs aimed at allies and foes alike, a bedrock of his 2024 campaign that he said would set the foundation for reviving a U.S. economy that he claims has been ripped off by other nations for decades. In his letter to Mexico's leader, President Claudia Sheinbaum, Trump acknowledged that the country has been helpful in stemming the flow of undocumented migrants and fentanyl into the United States. But he said the country has not done enough to stop North America from turning into a 'Narco-Trafficking Playground.' 'Mexico has been helping me secure the border, BUT, what Mexico has done, is not enough,' Trump added. Trump in his letter to the European Union said the U.S. trade deficit was a national security threat. 'We have had years to discuss our Trading Relationship with The European Union, and we have concluded we must move away from these long-term, large, and persistent, Trade Deficits, engendered by your Tariff, and Non-Tariff, Policies, and Trade Barriers,' Trump wrote in the letter to the EU. 'Our relationship has been, unfortunately, far from Reciprocal.' The letters come in the midst of an on-and-off Trump threat to impose tariffs on countries and right an imbalance in trade. Trump in April imposed tariffs on dozens of countries, before pausing them for 90 days to negotiate individual deals. As the three-month grace period ended this week, Trump began sending his tariff letters to leaders but again has pushed back the implementation day for what he says will be just a few more weeks. If he moves forward with the tariffs, it could have ramifications for nearly every aspect of the global economy. EU members and Mexico respond European Union Commission President Ursula von der Leyen responded by noting the bloc's 'commitment to dialogue, stability, and a constructive transatlantic partnership.' 'At the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required,' von der Leyen said in a statement. Von der Leyen added that the EU remains committed to continuing negotiations with the U.S. and coming to an agreement before Aug. 1. Trade ministers from EU countries are scheduled to meet Monday to discuss trade relations with the U.S., as well as with China. European leaders joined von der Leyen in urging Trump to give negotiations more time and warnings of possible new tariffs on Washington. 'With European unity, it is more than ever up to the Commission to assert the Union's determination to resolutely defend European interests,' French President Emmanuel Macron said in a statement posted on X. Italian Premier Giorgia Meloni's office said "it would make no sense to trigger a trade war between the two sides of the Atlantic." Danish Foreign Minister Lars Løkke Rasmussen told broadcaster DR that Trump was taking a 'pointless and a very shortsighted approach." Swedish Prime Minister Ulf Kristersson warned in an interview with SVT that 'everyone loses out from an escalated trade conflict, and it will be U.S. consumers who pay the highest price.' Trump, as he has in previous letters, warned that his administration would further raise tariffs if the EU attempts to hike its own tariffs on the United States. The Mexican government said it was informed during high-level talks with U.S. State Department officials Friday that the Trump letter was coming. The delegation told Trump officials at the meeting it disagreed with the decision and considered it 'unfair treatment,' according to a Mexican government statement. Sheinbaum, who has sought to avoid directly criticizing Trump in the early going of her presidency, expressed a measure of confidence during a public appearance on Saturday that the U.S. and Mexico will reach 'better terms.' 'I've always said that in these cases, you need a cool head to face any problem,' Sheinbaum said. With the reciprocal tariffs, Trump is effectively blowing up the rules governing world trade. For decades, the United States and most other countries abided by tariff rates set through a series of complex negotiations known as the Uruguay round. Countries could set their own tariffs, but under the 'most favored nation'' approach, they couldn't charge one country more than they charged another. The Mexico tariff, if it goes into effect, could replace the 25% tariffs on Mexican goods that do not comply with the existing U.S.-Mexico-Canada free trade agreement. Trump's letter did not address if USMCA-compliant goods would still be exempt from the Mexico tariffs after Aug. 1, as the White House said would be the case with Canada. Trump sent a letter to Canada earlier this week threatening a 35% tariff hike. Higher tariffs had been suspended With Saturday's letters, Trump has now issued tariff conditions on 24 countries and the 27-member European Union. So far, the tally of trade deals struck by Trump stands at two — one with the United Kingdom and one with Vietnam. Trump has also announced the framework for a deal with China, the details of which remain fuzzy. Treasury Secretary Scott Bessent on Saturday said the U.K. 'smartly' acted early. 'Let this be a lesson to other countries - earnest, good faith negotiations can produce powerful results that benefit both sides of the table, while correcting the imbalances that plague global trade,' Bessent said in a posting on X. Douglas Holtz-Eakin, a former Congressional Budget Office director and president of the center-right American Action Forum, said the letters were evidence that serious trade talks were not taking place over the past three months. He stressed that nations were instead talking amongst themselves about how to minimize their own exposure to the U.S. economy and Trump. 'They're spending time talking to each other about what the future is going to look like, and we're left out,' Holtz-Eakin said. Potential impact is vast If the tariffs do indeed take effect, the potential impact on Europe could be vast. The value of EU-U.S. trade in goods and services amounted to 1.7 trillion euros ($2 trillion) in 2024, or an average of 4.6 billion euros a day, according to EU statistics agency Eurostat. Europe's biggest exports to the U.S. were pharmaceuticals, cars, aircraft, chemicals, medical instruments and wine and spirits. Lamberto Frescobaldi, president of the Union of Italian Wines trade association, said Trump's move could lead to 'a virtual embargo' of his country's wine. 'A single letter was enough to write the darkest chapter in relations between two historic Western allies,' Frescobaldi said. Trump has complained about the EU's 198 billion-euro trade surplus in goods, which shows Americans buy more goods from European businesses than the other way around. However, American companies fill some of the gap by outselling the EU when it comes to services such as cloud computing, travel bookings, and legal and financial services. The U.S. services surplus took the nation's trade deficit with the EU down to 50 billion euros ($59 billion), which represents less than 3% of overall U.S.-EU trade. ___ Associated Press writers Josh Boak in Washington, Angela Charlton in Paris, Regina Garcia Cano in Caracas, Venezuela, Kirsten Grieshaber in Berlin, Dave McHugh in Frankfurt, Germany, and Giada Zampano in Rome contributed to this report. Aamer Madhani, The Associated Press
Yahoo
2 hours ago
- Yahoo
US economy poised to slow as Trump's tariffs hit consumers
The cloud of uncertainty that has hovered over the U.S. economy the first half of 2025 threatens to unleash a thunderstorm that dampens growth in the second half as President Donald Trump's higher tariffs hit consumers and his immigration crackdown rocks the job market. While growth was already poised to slow, Trump on July 10 increased the risks of a more pronounced pullback by announcing plans to raise the tariff rate on many Canadian imports from 25% to 35% and impose a blanket 15% to 20% duty on most other countries, up from 10%. On July 12, the tariff threats ramped up again with Trump announcing 30% tariffs on all imports from Mexico and the European Union. In the spring, Trump announced a 90-day pause on high double-digit reciprocal tariffs for China and many other countries, easing recession fears and reversing a stock market sell-off. This week, White House officials extended the reprieve to August 1 to provide more time for negotiations. But in recent days, Trump again has ratcheted up his trade threats, unveiling plans for a 50% tariff on imported copper, 50% on all shipments from Brazil and high fees for 14 countries that don't reach a deal with the U.S. by August 1. Already in effect: a 50% levy on metals, 25% on cars and 30% on China, in addition to the blanket 10% charge that appears poised to rise sharply. The Dow Jones Industrial Average tumbled nearly 280 points July 11 on Trump's latest tariff threats. 'Risks are intensifying that we may see much higher tariff rates, with consequent effects on inflation and growth,' said Jonathan Millar, senior U.S. economist at Barclays. Just 42% of CEOs of small and midsize companies plan to add to their staffs in the next year, lowest on record dating to 2003, according to a June survey by Vistage, a CEO networking group. Gregory Daco, chief economist at EY-Parthenon, has lowered his odds of a recession this year to 35% from 50% but said the chances of a downturn would climb above 50% if Trump reverts to the tariffs he rolled out in early April. Even without the harsher import fees Trump recently announced, economists have been predicting a notable slowdown in growth the rest the year. 'We're carrying much less economic momentum, with a softening labor market trend, inflation about to reaccelerate and income (growth) more subdued,' Daco said. Forecasters have been surprised that tariffs haven't yet had a significant effect on inflation. Daco said that's partly because manufacturers and retailers stocked up on foreign goods in February and March, before the fees took effect. Also, he said, companies have been routing products through bonded warehouses that delay tariff payments. U.S. businesses and foreign exporters have absorbed much of the costs. And higher prices from tariffs don't immediately show up in inflation reports, such as the consumer price index. But all those tactics can delay the inevitable only so long, Daco said. 'As inventory buffers thin, bonded warehouse timelines expire and cost absorption runs its course, price pressures will start surfacing more clearly into the second half of 2025,' he wrote in a note to clients. Before Trump escalated the trade conflicts, many economists said the levies have pushed the average U.S. tariff rate from about 3% to 15%, a rise that would drive the Federal Reserve's preferred annual inflation measure from 2.7% to about 3.3% by the end of the year. Meanwhile, an immigration surge that has bolstered the U.S. labor supply and job growth the past few years 'is about to go into reverse,' JPMorgan Chase said in a research note last week. The Trump administration is ending provisions that temporarily protected immigrants who lack permanent legal status from deportations for humanitarian reasons. That will likely cause 1.8 million migrants, including about 1.1 million workers, to lose their legal status in the second half of the year, JPMorgan Chase said. Especially affected are industries such as agriculture, construction and hospitality. Already, annual net immigration to the U.S. has slowed from about 3 million the past few years to an annual rate that's set to reach 500,000 by year's end, according to the Congressional Budget Office and economists. That compares to a rate of 900,000 a year before the pandemic. While the slowdown is projected to reduce job growth, forecasters reckoned that would take some time because many immigrants who arrived in recent waves are still settling into jobs. But the spike in deportations could quickly slow America's job engine within months, JPMorgan Chase said. The economy shrank at an annual rate of 0.5% in the first quarter but forecasters said that was mostly because the flood of imports from companies stocking up had to be subtracted from output (since they're made in foreign countries). Private domestic demand, a more telling measure of the economy's underlying health, increased a solid 1.9%. And economists estimate the government later this month will report 2% growth in the second quarter, according to those surveyed by Wolters Kluwer Blue Economic Indicators. But those forecasters expect quarterly growth to average just 0.7% the second half of the year, in line with Millar's estimate. and above the 0.5% gain Daco projects. That's close to stall speed. From the fourth quarter of 2024 to the fourth quarter of 2025, Millar estimates the economy will grow a meager 0.5%, compared to 2.5% the prior year. Here's a breakdown: Resilient households have propped up the economy the past few years but the threat of higher prices from tariffs has led Americans to rein in their spending, Daco and Millar said. Now, the actual pass-through of the fees into prices will likely have a more tangible impact on consumption, Daco said. Consumers especially have been cutting back on discretionary purchases, such as recreational services, travel and dining out. Income also has moderated, with average annual wage growth falling from about 6% in early 2022 to 3.7% in June. After adjusting for inflation, consumer spending fell 0.3% in May and is expected to rise just 0.7% the second half of the year, according to the Wolters Kluwer survey. Consumption makes up 70% of economic activity. Average monthly job growth has slowed to 130,000 so far this year from 168,000 in 2024. Companies have sharply cut back hiring amid tariff-related uncertainty but remain hesitant to lay off workers following severe pandemic-related labor shortages, Millar said. But Daco said more companies are shedding workers through attrition and retirement, as well as targeted layoffs. Tracy Marlowe, CEO of Creative Noggin, a marketing company based in San Antonio, Texas, said sales were flat last year amid election-related uncertainty. After the election, clients began making requests for new campaigns but pulled back again in early 2025 amid Trump's on-again, off-again tariffs. Marlowe had been planning to add a full-time employee to her staff of 20 later this year but has decided to hold off. Clients 'are just trying to figure out how to stay alive,' she said. "I'll hire once I need somebody." Coping with the Great Recession and the COVID-19 downturn was easier, Marlowe said, because she knew the roadmap for recovery. By contrast, the trade war 'has been a constantly changing roller coaster... It makes it very difficult to predict what's next.' The immigration crackdown is set to slow job growth further, Daco said. Business capital spending surged in the first quarter as firms stocked up ahead of tariffs. But the economists surveyed by Wolters Kluwer expect outlays to fall in the second, third and fourth quarters. Companies already leery about ramping up spending amid the uncertainty are likely to hunker down further as the import costs they absorb squeeze profits, Daco said. Housing starts fell 9.8% in May and single-family starts are down 16% since February, according to Oxford Economics. 'Elevated interest rates and higher building material costs due to tariffs will make construction less profitable,' Oxford said in a research note. This article originally appeared on USA TODAY: Economy expected to approach stall speed as tariffs hurt consumers Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
