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Economic Times
19 hours ago
- Business
- Economic Times
Rising US fiscal risk signals dollar weakness and yield spike ahead: Jahangir Aziz
So, with the increase in fiscal deficit and reduced foreign borrowing, the US might experience higher yields and a weaker dollar, as the government's actions increase the risk premium on the country. This is how I see the dollar and US yields moving. Synopsis JPMorgan's Jahangir Aziz highlights the potential impact of a July 31st court ruling on existing tariffs, overshadowing the August 1st deadline. The court's decision on IEEPA could invalidate current trade deals and lead to prolonged uncertainty. Despite market resilience, the delayed impact of tariffs on inflation and ongoing negotiations with India remain key concerns. "So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd," says Jahangir Aziz, JPMorgan. ADVERTISEMENT Help us analyze and understand what the key talking points for market participants are right now. The 9th July deadline has already passed, and we're now waiting for the 1st of August. However, there haven't been any major announcements so far, and many tariff deals are still pending. How do you think market participants will interpret this, especially since the markets have shown resilience recently? Jahangir Aziz: The markets are clearly showing resilience and are shrugging off the new or recent set of tariffs that have been announced. However, let me make two points. First, August 1st is after July 31st, and the market has somewhat forgotten that amidst all the talk about new tariffs and the Fed. On July 31st, the federal appeals court will begin hearing the case of the appeal made by the government regarding a case they lost in the US Court of International Trade. The court ruled that all tariffs imposed under IEEPA (International Emergency Economic Powers Act), which includes universal tariffs and reciprocal tariffs, are inadmissible. Depending on what the appeals court does on July 31st, or maybe in a couple of days (since it is an appeals court), these tariffs could become moot. This is because IEEPA, the act on which both the tariffs and the reciprocal tariffs are based, could no longer be used. In that case, we could face more months of uncertainty, as the US government may then shift away from IEEPA tariffs to tariffs based on other sections of the trade act, such as Section 301, Section 232, etc. So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd. Also, we'd like to get your view on developments regarding the Fed chair. With US inflation seeming to be under control, if there is no rate cut as the market expects, do you think this could lead to a change in leadership at the Fed? Jahangir Aziz: That's a completely different issue, and it's hard to speculate on it. But let me start with your first point. You mentioned that inflation is under control. Well, if you look at goods inflation last month and exclude autos (which have dampened due to price cuts by Japanese auto manufacturers selling to their subsidiaries), goods inflation in the US was running at around 5.5%. Even though there has been a significant shift away from China to countries with lower tariffs, like ASEAN, Vietnam, Malaysia, Thailand, etc., and many firms are absorbing tariff increases on their profit margins for now, goods inflation—excluding autos—still stands at 5.5%. The tariff impact is taking longer than expected. As we had anticipated, it would take 2 to 4 months for the tariff effects to hit inflation. Just because it isn't showing up in the data now doesn't mean it won't later. The Fed is aware of this and will be watching for signs of this pass-through and also keeping an eye on non-farm payrolls. Although the most recent non-farm payrolls report showed a surprise number of 147,000, the private sector non-farm payrolls stood at just 74,000—one of the lowest in the past two years. I want to talk about India. The only missing piece seems to be what happens with tariffs, while India is holding ground. There doesn't seem to be a consensus yet on how much tariffs India will face. Where do you think this situation is headed? Jahangir Aziz: My guess is that since India hasn't received a letter yet, at least negotiations are still ongoing, which is a very good sign. Unlike countries like Japan or Korea, which have already received letters and now have to scramble to start trade deals, India's negotiations are still in progress, and the US is not just saying, "Here's the deal, take it or leave it." So that's a positive sign. As for where the tariffs will settle, I don't have an insider perspective, but my guess is that India will likely try to protect its agricultural sector, as it should. India would probably be willing to compromise on other sectors. But suppose we have a trade deal tomorrow, and then the federal court rules that IEEPA tariffs are inadmissible, upholding the US CIT court's decision. Then, what happens to the trade deal? These deals are being made on the assumption that IEEPA tariffs will continue. But if the appeals court, or even the Supreme Court, rules otherwise, then none of these trade deals would make sense. What kind of deal are you cutting under those circumstances? The way markets are digesting tariff news seems a little different this time. We aren't seeing a surge in gold prices or the dollar index, and emerging market sentiment is holding up relatively well. How do you see the dollar moving from these levels, particularly with regard to its impact on emerging market sentiment? Jahangir Aziz: I look at the US dollar and 10-year treasury yields through the lens of my experience working with emerging market countries. I'm not suggesting the US is an emerging market—far from it. The US probably has the best private sector in the world. However, looking at it from this perspective, consider this: the US fiscal deficit for fiscal year 2025 is projected to be around 6.2%, and for 2026, it could be around 7.2%. At the same time, the US is seeking to impose tariffs to address its trade balance, which is expected to decrease from 4% to about 3.5% due to tariffs. Here's the situation: the US is increasing its fiscal deficit by 1% while also reducing its current account deficit by 0.5%, meaning its foreign borrowing will decrease. To make up for this, the US needs to find 1.5% of GDP in increased domestic savings. If this were an emerging market country, we'd expect bond yields to rise and the exchange rate to depreciate. So, with the increase in fiscal deficit and reduced foreign borrowing, the US might experience higher yields and a weaker dollar, as the government's actions increase the risk premium on the country. This is how I see the dollar and US yields moving. 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Time of India
19 hours ago
- Business
- Time of India
Rising US fiscal risk signals dollar weakness and yield spike ahead: Jahangir Aziz
"So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd," says Jahangir Aziz , JPMorgan . Help us analyze and understand what the key talking points for market participants are right now. The 9th July deadline has already passed, and we're now waiting for the 1st of August. However, there haven't been any major announcements so far, and many tariff deals are still pending. How do you think market participants will interpret this, especially since the markets have shown resilience recently? Jahangir Aziz: The markets are clearly showing resilience and are shrugging off the new or recent set of tariffs that have been announced. However, let me make two points. First, August 1st is after July 31st, and the market has somewhat forgotten that amidst all the talk about new tariffs and the Fed. On July 31st, the federal appeals court will begin hearing the case of the appeal made by the government regarding a case they lost in the US Court of International Trade . The court ruled that all tariffs imposed under IEEPA (International Emergency Economic Powers Act), which includes universal tariffs and reciprocal tariffs, are inadmissible. Depending on what the appeals court does on July 31st, or maybe in a couple of days (since it is an appeals court), these tariffs could become moot. This is because IEEPA, the act on which both the tariffs and the reciprocal tariffs are based, could no longer be used. In that case, we could face more months of uncertainty, as the US government may then shift away from IEEPA tariffs to tariffs based on other sections of the trade act, such as Section 301, Section 232, etc. So, while August 1st is a key deadline, July 31st—just the day before—could have a meaningful and material impact on what we wake up to on August 1st or 2nd. 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With US inflation seeming to be under control, if there is no rate cut as the market expects, do you think this could lead to a change in leadership at the Fed? Jahangir Aziz: That's a completely different issue, and it's hard to speculate on it. But let me start with your first point. You mentioned that inflation is under control. Well, if you look at goods inflation last month and exclude autos (which have dampened due to price cuts by Japanese auto manufacturers selling to their subsidiaries), goods inflation in the US was running at around 5.5%. Even though there has been a significant shift away from China to countries with lower tariffs, like ASEAN, Vietnam, Malaysia, Thailand, etc., and many firms are absorbing tariff increases on their profit margins for now, goods inflation—excluding autos—still stands at 5.5%. The tariff impact is taking longer than expected. As we had anticipated, it would take 2 to 4 months for the tariff effects to hit inflation. Just because it isn't showing up in the data now doesn't mean it won't later. The Fed is aware of this and will be watching for signs of this pass-through and also keeping an eye on non-farm payrolls. Although the most recent non-farm payrolls report showed a surprise number of 147,000, the private sector non-farm payrolls stood at just 74,000—one of the lowest in the past two years. I want to talk about India. The only missing piece seems to be what happens with tariffs, while India is holding ground. There doesn't seem to be a consensus yet on how much tariffs India will face. Where do you think this situation is headed? Jahangir Aziz: My guess is that since India hasn't received a letter yet, at least negotiations are still ongoing, which is a very good sign. Unlike countries like Japan or Korea, which have already received letters and now have to scramble to start trade deals, India's negotiations are still in progress, and the US is not just saying, "Here's the deal, take it or leave it." So that's a positive sign. As for where the tariffs will settle, I don't have an insider perspective, but my guess is that India will likely try to protect its agricultural sector, as it should. India would probably be willing to compromise on other sectors. But suppose we have a trade deal tomorrow, and then the federal court rules that IEEPA tariffs are inadmissible, upholding the US CIT court's decision. Then, what happens to the trade deal? These deals are being made on the assumption that IEEPA tariffs will continue. But if the appeals court, or even the Supreme Court, rules otherwise, then none of these trade deals would make sense. What kind of deal are you cutting under those circumstances? The way markets are digesting tariff news seems a little different this time. We aren't seeing a surge in gold prices or the dollar index, and emerging market sentiment is holding up relatively well. How do you see the dollar moving from these levels, particularly with regard to its impact on emerging market sentiment? Jahangir Aziz: I look at the US dollar and 10-year treasury yields through the lens of my experience working with emerging market countries. I'm not suggesting the US is an emerging market—far from it. The US probably has the best private sector in the world. However, looking at it from this perspective, consider this: the US fiscal deficit for fiscal year 2025 is projected to be around 6.2%, and for 2026, it could be around 7.2%. Live Events At the same time, the US is seeking to impose tariffs to address its trade balance, which is expected to decrease from 4% to about 3.5% due to tariffs. Here's the situation: the US is increasing its fiscal deficit by 1% while also reducing its current account deficit by 0.5%, meaning its foreign borrowing will decrease. To make up for this, the US needs to find 1.5% of GDP in increased domestic savings. If this were an emerging market country, we'd expect bond yields to rise and the exchange rate to depreciate. So, with the increase in fiscal deficit and reduced foreign borrowing, the US might experience higher yields and a weaker dollar, as the government's actions increase the risk premium on the country. This is how I see the dollar and US yields moving.
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Business Standard
5 days ago
- Business
- Business Standard
Trump urges Supreme Court to reject early challenge to his tariffs
Trump's import taxes remain in effect even though two courts have said many of them exceed the president's powers Bloomberg President Donald Trump asked the US Supreme Court to turn away a challenge to his sweeping tariffs, telling the justices they should let the legal fight develop before getting involved. The filing comes in a case filed by two educational-toy makers that want the justices to take an unusual shortcut by getting involved before a federal appeals court has ruled. US Solicitor General D. John Sauer, the administration's top Supreme Court lawyer, told the justices Thursday that they 'should not leapfrog' the lower court proceedings. Trump's import taxes remain in effect even though two courts have said many of them exceed the president's powers. The challenged taxes include Trump's April 2 'Liberation Day' tariffs, which combine a universal baseline levy of 10 per cent with potentially much higher rates for various trading partners. In the case before the high court, Learning Resources Inc. and hand2mind Inc. say Trump lacked authority to issue the tariffs under the 1977 International Emergency Economic Powers Act. US District Judge Rudolph Contreras in Washington agreed, though he limited his ruling to the two companies that sued. The Trump administration then appealed, and the companies are asking the Supreme Court to directly review Contreras' ruling. The high court in June refused to put the case on an ultra-fast schedule that might have led to arguments as soon as September. In a separate case, the US Court of International Trade similarly declared many of Trump's tariffs illegal in May. A different federal appeals court scheduled arguments in that case for July 31 and said the tariffs could stay in place in the meantime. The April 2 tariffs represented the biggest increase in US import taxes since the 1930 Smoot-Hawley levies, taking the country's average applied tariff rate to its highest level in more than a century. Trump has portrayed tariffs as critical to leveling the playing field for American businesses and workers amid chronic trade deficits. The case is Learning Resources v. Trump, 24-1287.
Indian Express
14-07-2025
- Business
- Indian Express
Tariff Tracker, July 14: Trump's latest tariff announcements, and the impact so far on the US
Dear reader, Last week, US President Donald Trump extended the pause on reciprocal tariffs on countries from July 9 to August 1. This was expected, given the sheer impossibility of concluding '90 deals in 90 days', as Trump originally promised in April. Over the past week, he also announced a new series of tariffs against 'foes' old and new. The onslaught began last Monday (July 7) as the United States levied tariffs of up to 40% on 14 countries, including longtime allies Japan and South Korea. In the following week, Trump announced 30% duties on imports from Libya, Sri Lanka, Iraq, Algeria, Mexico and the European Union. Canada faces 35% in duties, while all countries aligning with the 'Anti-American policies of BRICS', that is Brazil, Russia, India, China and South Africa plus five nations, face 10% additional tariffs, Trump wrote in a Truth Social post. Brunei and Moldova face 25% in tariffs, while the Philippines stands at 20%. Trump singled out Brazil for its 'witch hunt' against his close friend and former Brazilian president Jair Bolsonaro, announcing 50% tariffs. He also announced a 50% tariff on Copper following a 'robust NATIONAL SECURITY ASSESSMENT', and promised to charge up to 200% tariffs on foreign drugs. The renewed tariffs are expected to become effective from August 1. Trump announced two sets of tariffs on April 2, which he dubbed 'Liberation Day'. These included a 10% baseline tariff on all trading partners, and country-specific rates on countries with which the US has maintained trade deficits. On April 9, he paused tariffs in the second category for 90 days, promising to complete 90 deals with 90 countries in this period. By then, he had already imposed punitive tariffs for fentanyl trafficking, at 25% on Mexico and Canada, and 30% on China, to pressure the trio into imposing stricter curbs on purported fentanyl trafficking. All three categories of tariffs have been challenged in court, as they were announced under the International Emergency Economic Powers Act, 1977 (IEEPA). The Act, which allows the president to bypass congressional approval, has typically been used to impose sanctions on countries which pose a national threat. We explained the legal challenge in the May 29 Tariff Tracker, while the court order described here has since been stayed. COUNTRY-SPECIFIC TARIFFS (Source: The New York Times. *Canada and Mexico were subjected to the 25% fentanyl tariffs, while Brazil only faced the 10% baseline rate and not a country-specific tariff.) Initially, the Trump administration entered into an ever-escalating trade war with China, which was the only country that announced its own retaliatory tariffs on the US. Trump's 10% fentanyl tariff on China in February, doubled a month later, failed to achieve its objective of nudging the Chinese side into talks. Instead, China announced countermeasures targeting Liquefied Natural Gas, coal, and farm machinery, among other products. The trade war escalated with the Liberation Day tariff announcements, which at their peak, saw US tariffs on Chinese products reach 145%, while China charged 125% tariffs. China also announced an elaborate licensing system to restrict exports of rare earth minerals, holding a global monopoly of sorts on their processing. It cited a national security risk behind the decision, and commentators have deemed it a significant leverage going forward. A notional truce was achieved on May 12 following representatives' talks in Geneva, but trouble arose as the US accused China of moving at a sluggish pace in exporting rare earths to the US. The Trump administration moved to restrict access to a range of products, chemicals, software and technologies critical for the Chinese manufacture of advanced chips and jet engines. Further talks resulted in a handshake agreement on June 11 in London, suggesting a return to the terms agreed by both countries on May 12. Details of the most recent agreement remain under wraps. And what are the sector-specific tariffs? Trump announced additional 25% tariffs on steel, aluminium and automobiles under Section 232 of the 1962 Trade Expansion Act. These depend on a 2019 Commerce Department investigation calling these imports a 'national security' risk. Last month, he doubled the metals tariffs to 50%, a move he described in an executive order that would 'counter foreign countries' as they 'undercut the competitiveness' of American industries. The 'de minimis rule' was a shipping loophole that allowed Chinese exporters to sell goods, including clothes, directly to American consumers while bypassing tariffs, as long as they were priced below $800. Trump has also announced the following: * Tariffs on solar energy under Section 201 of the 1974 Trade Act, dating back to Trump's first term (2017-21). These are safeguard tariffs meant to protect domestic industries from foreign competition. * Section 301 tariffs on imports from China, punishing unfair trade practices. * Potential tariffs on pharma products and semiconductor chips under Section 232, pending an investigation into these industries. * 100% tariffs on films made outside the US. * A potential 25% duty on Apple if it continues to manufacture phones outside the US. Trump claims the tariffs have been a success. In a social media post dated July 8, he claimed that the tariffs have had 'ZERO IMPACT on Inflation', that 'Import Prices are actually DROPPING' and 'Tariffs are making our Country 'BOOM.'' As explained in previous editions of this tracker, the US President has been motivated by attempts to supposedly resolve the trade deficits the US maintains with several countries, describing this position as the US being 'ripped off' or 'subsidising' other countries. The Trump administration has also leaned on tariffs as a means to force countries to the negotiating table – Trump compared the US to a 'giant department store' in April, for which his administration will 'set the price' for countries seeking to do business with it. The reality, however, points to an inevitable path toward economic distress for American consumers. In its latest analysis dated July 11, the Yale Budget Lab noted that consumers currently face an overall average effective tariff rate of 18.7%, from 2.5% in January. The 18.7% rate is the highest since 1933, when the ill-fated Smoot-Hawley tariffs were in effect. If all the tariffs announced by the president become effective from August 1, the average tariff rate would rise to 20.6%, the highest since 1910, according to this analysis. However, one puzzling question has been how inflation has managed to remain muted, at 2.4% in June, even as the US Treasury collected a record $100 billion in customs duties and is projected to rake in $300 billion this year, according to a Fortune report. Economists have warned that the months to come could result in drastic price increases, with tariffs having only been in place for a short period. US importers have thus far borne the brunt of the tariffs, and it would be a while before these translated into higher consumer prices. The report also suggests the mass stockpiling of goods by big businesses ahead of the higher tariff rates becoming effective as another reason.
Arabian Post
12-07-2025
- Business
- Arabian Post
U.S. Tariffs Surge Above 20% as Trump Tests Market Limits
U. S. consumers now contend with an effective tariff rate exceeding 20%, marking the steepest level observed since the early 1900s, according to estimates by the International Chamber of Commerce following the latest round of import levies introduced under President Trump's administration. This escalation stems from a newly implemented baseline tariff of 10%, supplemented by selective duties—up to 50% on copper and 200% on pharmaceuticals—pushing the overall rate to unprecedented heights. Andrew Wilson, deputy secretary-general of the ICC, explained that the administration appears to be calibrating tariff levels to maximise revenue without triggering a full-scale market meltdown. Despite wide-ranging rates, Wall Street has shown remarkable composure, a stark contrast to the sharp sell-off experienced in April when the initial import duties were announced. Treasury Secretary Scott Bessent confirmed that customs collections have reached approximately $100 billion so far, with projections forecasting up to $300 billion by year-end. Legal and legislative challenges are emerging in response. A federal appeals court struck down the 'Liberation Day' tariffs imposed under the International Emergency Economic Powers Act, declaring the move exceeded executive authority, though the ruling is presently stayed pending appeal. Meanwhile, Congress is contemplating legislation aimed at curbing unilateral tariff powers, and trade negotiations with major trading partners—namely Japan, the EU, the U. K. and Canada—could moderate or delay certain duties. ADVERTISEMENT Since April, the U. S. has extended tariffs to a broad array of countries. Canada faces a general increase from 25% to 35% on non‑USMCA imports beginning 1 August, with additional duties on steel and aluminium already in place. Meanwhile, Brazil has been targeted with a 50% tariff, linked in part to political tensions, and levels between 25% and 40% are set for nations including Japan, South Korea, Thailand, Malaysia, the Philippines, Sri Lanka, South Africa and others. A hold‑and‑test strategy allows a window until August 1 for targeted trade deals. Market participants have noted this restrained approach: a 10% baseline is broadly absorbed, but steeper duties serve as leverage. The administration appears comfortable testing thresholds before escalating further. Economists caution that importers and consumers will bear the brunt of these changes. A Yale Budget Lab analysis determined that U. S. tariffs to date equate to a 24.6 percentage‑point rise in the average effective rate—potentially reaching 27% absent substitution effects. These duties could elevate consumer prices by roughly 2.9%, reducing household purchasing power by about $4,700 annually. Substitution toward non‑Chinese suppliers later moderates the rate to approximately 18.5%, the highest since 1933. A Harvard Business School study corroborates these dynamics: between March and June, import prices rose ~3%, and domestically produced goods competing with imports increased by ~2% due to elevated component costs and altered supply chains. Similarly, U. S. apparel imports from China fell to the lowest in 22 years in May, as buyers shifted to suppliers in Southeast Asia and Latin America. While equities appear resilient—with the S&P 500 near record highs—analysts warn that bond and currency markets may signal latent stress. UBS expects household and business inventories to help absorb short‑term shocks, but flags a possible 0.7 percentage‑point drag on GDP growth in 2025 if tensions persist. Businesses represented by the ICC, covering some 45 million firms, have voiced concern: 60% of respondents to an ICC pulse survey consider the tariffs negatively, citing cost inflation, supply chain uncertainty and the risk of retaliation as principal worries. Despite this, the ICC insists negotiators must prioritise de‑escalation and multilateral engagement. Secretary‑General John Denton called the policy shift 'a watershed moment in American trade policy' that could inflict systemic harm on the global economy, noting the effective U. S. tariff rate now eclipses levels last seen during the Smoot–Hawley era of the 1930s.
