MoranElkarifNews: Global stock markets are calling Trump’s bluff on tariffs

U.S. President Donald Trump slapped punitive tariff rates on 14 trading partners on Monday — but global markets are so far shrugging off the new policies.

The president announced on Monday that he had sent letters to the leaders of Japan, South Korea, Malaysia, Kazakhstan, South Africa, Laos, Myanmar, Bosnia and Herzegovina, Tunisia, Indonesia, Bangladesh, Serbia, Cambodia and Thailand. Each letter laid out new tariff rates on goods sent from the individual country to the United States.

The new rates, ranging from 25% to 40%, will come into effect on Aug. 1.

Asia-Pacific markets — several of which are set to be directly impacted by the new tariffs — staged a muted response Tuesday. Japan’s benchmark Nikkei 225 index ended the day 0.3% higher, while South Korea’s Kospi gained 1.8%.

European markets were also subdued, trading broadly flat on Tuesday in the first trading session since Trump made his announcements late Monday. The pan-European Stoxx 600 index was 0.09% lower shortly after midday in London, after moving between slight losses and gains through the morning.

On Wall Street, stock futures were broadly higher ahead of Tuesday’s trading session, coming off of a losing session on Monday.

It’s a drastically different reaction to the wild swings seen in April, when Trump’s initial “reciprocal tariffs” announcement sparked a global selloff.

One reason is likely to be because of Trump’s seemingly more flexible approach to the new policies. Speaking to reporters on Monday, he labeled the Aug. 1 deadline “firm, but not 100% firm.”

“If [the affected countries] call up and they say we’d like to do something a different way, we’re going to be open to that,” the president said.

According to AJ Bell Investment Analyst Dan Coatsworth, markets are counting on Trump to back down on his tariffs regime.

“The ‘TACO’ (Trump Always Chickens Out) trade is back on the table as the Trump administration’s latest announcements on tariffs offered some relief to financial markets,” he said in a Tuesday morning note, adding that the latest developments removed the “immediate cliff edge” of a July 9 tariff deadline.

However, the update also increases the period of uncertainty that governments, corporations and consumers are contending with.

The fact that some key U.S. trading partners — including the European Union, India and Taiwan — did not receive letters on Monday could either mean they are close to sealing preliminary deals — or will get letters shortly, Paul Ashworth, chief North America economist at Capital Economics, said in a Monday note.

Without deals, the effective tariff rate on U.S. imports will rise from 15.5% to 17.3%, he said. At the end 2024, it was at 2.5%.

“Given the very muted impact of tariffs on U.S. consumer prices up to now and that the tariff revenues are now being recycled thanks to the Republican Megabill that Congress just passed, the fallout should be manageable,” he said.

In Europe, the muted reaction from stocks may also be attributed to confidence that a EU-U.S. trade deal will be struck, averting the 20% tariff rate the White House had planned to impose on the bloc’s goods.

An EU diplomat told CNBC on Monday that the European Union could receive a letter from Trump later this week, giving the bloc more time to secure a framework agreement with the White House. This broad agreement is likely to include a 10% baseline tariff and may see certain goods — such as aircraft and spirits — given exceptions. The diplomat conceded, however, that it was “ultimately all up to Trump.”

It was also widely reported on Monday that EU Commission President Ursula von der Leyen had a “good exchange” with Trump over the weekend.

Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management’s Chief Investment Office, told CNBC on Tuesday morning that it was notable the EU had not received a letter — potentially because a deal is close, reassuring investors.

“Overall, the market generally seems to be comfortable with the idea that tariffs will probably settle close to the current effective rate (15%), albeit with likely lower country-level tariffs and more sector-level (semis, pharma, minerals) tariffs to come,” Ganesh said in an email.

“So overall, nothing in the letters will have changed the market’s view about where tariffs are going to end up, or the path by which we get there (threats and negotiations).”

Investors had already priced in the fact that many trade deals would not be reached before the July deadline, according to Toni Meadows, head of investment at London’s BRI Wealth Management — but he suggested that some investors may be being complacent.

“One comprehensive trade deal could take months, even years, to negotiate so the market didn’t believe that 90 partial deals in 90 days was ever possible,” he told CNBC in an email.

“At present investors seem comfortable riding Trump’s seesaw path to policy setting, but reciprocal tariffs are a tax on activity and it is too early to judge the actual impact on the economy. Perhaps things will change if we start to see a direct link in economic numbers.”

The U.S. administration should not think that investors will always be this sanguine, he added.

“The deadline extension does not give enough time for proper negotiations and shortly after that we have the usual pantomime with regard to the U.S. debt ceiling to contend with.”

— CNBC’s Ganesh Rao contributed to this report.